Michigan regulators move to protect Consumers Energy customers from some data center costs

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The Michigan Public Service Commission unanimously approved new rules for Consumers Energy’s largest customers Thursday that regulators said will protect other ratepayers from the cost of serving power-hungry data centers.

Historically, load growth stabilizes electricity costs by spreading the grid’s fixed costs over a growing market, said MPSC Chair Dan Scripps.

The growth from data centers looks different because facilities are adding 1 gigawatt in demand at a time rather than more incremental increases, he said.

One gigawatt is roughly equivalent to the output of three coal plants, according to the U.S. Department of the Interior.

“It really is sort of a fundamental issue of how to take advantage of the opportunities that growth represents … without adding additional costs to existing customers,” Scripps said.

Environmental groups that submitted testimony in the Consumers Energy tariff case looked to expand its scope to better protect ratepayers from the costs of “stranded assets.” These costs emerge if data centers fail to materialize or wind down before grid investments are paid off.

Environmentalists also aim to safeguard Michigan’s requirement for 100% clean energy generation by 2040.

These groups challenged Consumers’s proposed 15-year electric contracts as insufficient for recouping the cost of grid investments and sought to require that contracts include benchmarks for meeting state climate goals.

Shannon Fisk, director of state electric sector advocacy for the environmental law group Earthjustice, said the MPSC’s decision establishes relatively protective standards against stranded asset risks and sets up a process for addressing traditional cost allocation that could shift data center costs onto other ratepayers.

“The big disappointment is that the commission did not take steps to (ensure) the arrival of a bunch of data center load doesn’t undermine the renewable and clean energy standards,” he said.

Michigan regulators address stranded asset risks

The terms approved by the MPSC include a 15-year contract term for data centers and other large customers, with a minimum service threshold of 100 megawatts or greater. The order adds a minimum billing demand of 80%, meaning the customers are required to pay for 80%of their forecasted energy need regardless of usage.

The commission also approved an exit fee for large customers that are ending service. It’s equal to the minimum monthly bill multiplied by the months remaining in the contract. The default collateral requirement for these customers is equal to half of the exit fee, to ensure the fee gets paid.

Data center cost allocation and rates will be addressed in future rate cases, according to the MPSC.

Consumers Energy will be required to file six cost-of-service studies and rate design proposals with the state to examine large load customers’ impact on rates. These reports will be used to set rates going forward.

The commission said the impact of large customers on renewable and clean energy standards is best addressed in other proceedings.

Commissioner Katherine Peretick drew attention during Thursday’s meeting to a requirement that Consumers submit a filing for each large load customer that proves any costs are paid for by that customer.

“No other residential, commercial, or industrial customer may subsidize the costs or have their electric rates raised as a result of a new large load,” she said.

Earthjustice’s Fisk said follow up is needed from the MPSC to ensure that data center costs aren’t passed on to other customers.

Advocates will also need to weigh in on Consumers’ upcoming integrated resource plan and other proceedings to ensure data center energy needs don’t prolong the state’s reliance on natural gas and coal, he said.

“The commission kind of punted on that issue rather than using the tariff proceeding as the first step in ensuring that we’re planning ahead so that we will meet those standards.”