A Fight Between Big Tech And An Ohio Utility May Preview Turmoil Ahead For Data Centers

A growing fight over how data centers — and the tech giants that occupy them — will pay for expanded power access in Ohio could be a sign of more challenges lurking ahead in the industry's fastest-growing markets. 

Like many electric utilities in emerging data center development hotbeds across the U.S., AEP Ohio was caught off guard last year by a sudden surge in the amount of power being requested for planned data centers in its Columbus-area service territory.

Now, concerned that the billions of dollars in infrastructure improvements needed to fulfill those requests could lead to higher electricity costs for its existing customers, AEP Ohio’s leadership wants to create new rate structures specifically targeting data centers. This would require data centers to pay upfront for all the power the utility makes available to them whether they use it or not. 

Data center developers and tech giants like Amazon and Microsoft have fought back aggressively against AEP Ohio’s plan, urging the state’s utility regulator to reject measures they say are unfair and likely to bring data center development in the area to a screeching halt. A Google executive wrote in a testimony that the measures could cause companies to reconsider their investments in the state. 

Similar measures are being considered in a growing number of U.S. markets, as power providers and state governments in places like North Carolina, Indiana and Texas face similar concerns about the risks created by the data center industry’s explosive growth. 

Developers expect this trend to spread across more markets in the coming months. This could shift the development landscape and add another hurdle for firms already struggling to find the power needed to fuel the industry's growth. 

“Markets that were not major data center markets are seeing a massive, massive influx of demand, and utilities are just totally caught on their heels,” said Andy Cvengros, a managing director at JLL and the firm’s U.S. data center lead.  “Secondary markets are going to have significant issues. I think people are starting to look elsewhere.”

Columbus, Ohio, isn't one of the data center industry’s traditional hubs, but since 2020, tech giants like Amazon, Microsoft, Google and Meta have rapidly established major data center footprints in the area. AEP Ohio had already seen a record spike in power consumption and requests for grid connections, demand that has exploded further over the past 24 months as the emergence of artificial intelligence has supercharged Big Tech’s data center capacity needs. 

In addition to the 5,000 megawatts of future power deliveries the utility already has under contract through 2030, it now has 30,000 megawatts of new service requests from a range of data center operators, according to filings with state regulators.

These requests, if fulfilled, would triple AEP Ohio’s peak power load and raise the Columbus area’s electricity consumption to that of New York City.

Faced with this unprecedented upsurge in energy demand, AEP Ohio has had to scramble to expand grid capacity, ramping up capital expenditures to build billions of dollars worth of new transmission infrastructure. 

But AEP Ohio’s leadership fears that at least some of the data center demand driving this planned spending is likely a mirage. Utility executives believe many of the requests for power in their pipelines from data center developers are speculative, with a likelihood that some proposed campuses will never come to fruition, and those that do may use just a small fraction of the power being requested.

If there is no buyer for the electricity this new infrastructure is built to deliver, the cost of developing the “stranded” grid capacity would fall to the utility’s other ratepayers, driving up retail electricity prices. Homeowners and other existing energy customers would end up footing the data center industry’s bill. 

The new electricity rate structures, known as tariffs, that AEP Ohio has proposed exclusively for data center customers are designed to minimize the risk that ratepayers get stuck holding the tab. 

The contract terms, which would require approval from the state’s Public Utilities Commission, include “minimum take” clauses that would require data centers to pay for 90% of the power they are allotted regardless of whether they consume it. The tariffs also mandate the rate at which data center operators must scale up power usage at their campuses and carry significant exit fees if the contracts are breached.  

“If billions of dollars of new transmission investment were built for data centers but not fully used, this would harm AEP Ohio’s other customers through higher rates,” AEP Ohio’s Matthew McKenzie told regulators in April.  “AEP Ohio’s proposed data center tariffs will require data centers to make long-term financial commitments, to have more skin in the game, to mitigate the risk that transmission infrastructure will be built for data centers but not needed.” 

AEP Ohio’s proposed tariffs have prompted fierce pushback from data center builders and operators, with major tech firms and trade groups like the Data Center Coalition filing objections with Ohio’s Public Utilities Commission.

In testimony to the state regulator last month, operators charged that the new tariffs single out data centers in ways that are unfair and “discriminatory,” even as other major power users like chip fabrication plants also expand in the area. While data center operators and tenants routinely agree to minimum take clauses to help utilities manage risk, industry representatives said requiring that data centers pay 90% of their capacity up front, along with measures dictating firms’ pace of expansion, are unreasonable and make operating in the market unreasonable for even the world’s largest tech companies. 

The impact, they said, would effectively shut down new data center development in the area. According to JLL’s Cvengros, just the threat of the new tariffs is already pushing developers out of the market. 

“I have data center clients right now who've been actively looking in AEP’s territory, and now they're saying they need to move to areas around Cleveland and Canton [served by] FirstEnergy,” Cvengros told Bisnow.

In testimony to regulators and conversations with Bisnow, industry leaders said that while the utility’s concerns about the risk posed to ratepayers are valid, the proposed measures are far too blunt an instrument for what is a solvable issue that the data center industry is willing to address. 

Developers and operators are sympathetic to the fact that power providers in emerging hubs like Columbus are in unfamiliar territory, said Bill Thomas, chief energy officer at hyperscale campus developer CleanArc.

He said they aren't accustomed or well-suited to adding a lot of new grid capacity quickly, and unlike utilities in more established data center markets, they don’t have years of experience with or expert understanding of the unique needs and demand profile of a data center sector that suddenly accounts for a significant percentage of their demand growth. 

What has prompted such significant pushback in Ohio is both the severity of the measures and the utility’s seeming lack of engagement with an industry that regularly works with utilities to improve demand projections and find ways to add capacity while sharing the risk that comes with these infrastructure improvements.

“It's the machete approach to ratemaking: they're basically saying they don’t want to deal with this so let’s just take a machete to it and hand them a tariff that protects everybody else and puts all the responsibility on them. Any reasonable person would push back on that,” Thomas said. “They have to protect the existing ratepayers from any financial repercussions if we ghost, but the volume and dimensions of what they’re asking is unreasonable.”  

Major data center firms say they are being punished for problems that are largely not of their own making. In fact, established developers and tenants have typically welcomed more measured efforts by utilities to cull their grid connection pipelines of requests that are unlikely to materialize into actual demand, Cvengros said.   

Desperate for access to power but facing up to seven-year waits for grid connections in most data center markets, hyperscalers are eager for utilities to take steps that would filter out more speculative or unfeasible power requests, even if it means additional capital requirements. Firms have shown a willingness to jump through administrative hoops, commission expensive studies and put down significant collateral to help power providers separate the wheat from the chaff and make better demand projections. 

“In every single market, we've seen a flood of private equity guys and landowners who go to the utility and get a power study for 500 megawatts for a farm just so that land’s worth six times as much,” Cvengros said. “The big issue is that reputable data center developers and operators are being treated exactly the same in terms of getting power, and it's clogging up the system. Utilities are looking at us to help them understand who's real and who’s not.”

AEP Ohio’s proposed tariff may be an outlier in terms of its severity and impact on what was previously among the country’s fastest-growing data center markets. But it represents the leading edge of an accelerating trend that has seen a growing number of emerging markets enact, or at least consider, increasingly stringent and targeted measures intended to ensure data centers shoulder the cost of new power infrastructure utilities built to serve them.  

North Carolina-based Duke Energy announced in May it is pursuing similar tariffs requiring large minimum payments regardless of actual power consumption from data centers and other large-scale power consumers. The contracts would also mandate large upfront payments to help fund new power infrastructure projects.

In July, an Indiana utility proposed a tariff aimed at funding new infrastructure that introduced fees for companies that backed out of power commitments and raised minimum payments for all customers requesting more than 150 megawatts. 

Even in famously business-friendly Texas, state officials are discussing the possibility of enacting stringent new measures for data centers over fears that the cost of new transmission lines will be borne by rural communities. 

“I would expect that almost every utility that’s seeing this kind of demand increase is already working on something like this,” Thomas said. “It may not be formalized, and it may not be public, but it’s very clear that they’re all already working on this.”