To: The Public Utilities Commission of Ohio (PUCO)
Commissioners: Jenifer A. French, Chair; Daniel R. Conway; Dennis P. Deters; Lawrence K. Friedeman; and John D. Williams
From: The Heartland Institute
Regarding: The attempt by AI data centers and certain utilities (Big Tech) to go around the normal regulatory process for supply and rate cases
American Electric Power Ohio (AEP) and Big Tech are attempting to formulate a sweetheart deal that would give Big Tech special favoritism not enjoyed by common ratepayers. AEP is right to be concerned about the substantial increase in demand that Big Tech data centers are imposing upon the electric grid, but solving the problem by giving Big Tech special favors and freezing out the Public Utilities Commission oversight merely makes the problem worse.
To satisfy that demand, AEP has proposed an unusual solution, asking PUCO to require Big Tech developers to commit to paying for at least 90 percent of the capacity, transmission, and distribution costs to satisfy their anticipated demand for 10 years, even if Big Tech—AI, and cryptocurrency firms— end up using less power than projected. It is rare for a utility to propose that a specific industry or group of power users bear the brunt of a rate request, but AEP claims that unless such action is taken, the region may not have enough energy to power future development projects or keep the grid reliable.
To be fair, AEP does not come to this proposal with entirely clean hands, having embraced the goal of going net zero. It’s former chairman, Nicholas Akins, bragged, “AEP has retired or sold nearly 13,500 megawatts (MW) of coal-fueled generation during the past decade, and by 2030, we will have reduced our coal-fueled generating capacity by 74% from 2010 levels.” AEP’s embrace of the Biden/Harris administration’s net zero goal has come at the expense of regulated utilities’ traditional and legally mandated concern of ensuring reliable and affordable power for ratepayers. Had AEP not sold off and planned the premature closure of so much coal capacity, there would be more baseload power available to meet growing demand – not sufficient by itself to meet anticipated demand, but certainly much of the anticipated shortfall would be avoided. Having said that, AEP is correct that the consortium of AI, cryptocurrency, and utility groups’ voluntary settlement, developed outside of the regulatory process or with the involvement of AEP, the utility that will be expected to provide power to the groups, is illegitimate and should not be accepted by PUCO.
PUCO’s mission and charge is to “assure all residential and business consumers access to adequate, safe and reliable utility services at fair prices, while facilitating an environment that provides competitive choices.” Among the steps necessary to carry out this mission effectively, in the instance of ensuring a reliable, universal, electric power supply provided at fair prices are:
Mandating the availability of adequate, safe and reliable utility service to all business, industrial and residential consumers.
Ensuring financial integrity and service reliability in the Ohio utility industry.
Promoting utility infrastructure investment through appropriate regulatory policies and structure.
Regulating utilities’ rates and terms of service for monopoly and non-competitive services.
Monitoring and enforcing compliance with rules and statutory protections against deceptive, unfair, unsafe, and anti-competitive utility practices.
Resolving through mediation, arbitration, and adjudication disputes between utilities and residential, commercial, and industrial customers, as well as between competing utilities.
The energy intensive Big Tech industry’s settlement proposal falls outside or would possibly subvert several of the safeguard steps PUCO has established to ensure reliable, fairly priced electric power, for residential, commercial, and industrial users alike.
Rather than an agreement negotiated outside of the normal process, Big Tech should have to negotiate a plan with AEP that would, following the normal course of applications for power expansion and rate cases, be then presented to PUCO for consideration and public notice, hearings, and appraisal.
To best assure that power demands of Big Tech and the attempt by AEP to green virtue signal while increasing its profits do not reduce or compromise the reliability of the electric power supply in general or unduly burden residential, commercial, and industrial users in general with higher cost electricity, we propose:
- Establishing the position of a ratepayer advocate at PUCO. That person would be dedicated solely to ensuring utility plans brought before the commission minimize the cost of monopoly utilities’ new construction and rate plans, while firming up reliability.
- Require that future power growth come from sources primarily produced domestically within the United States and that infrastructure necessary to deliver energy to the customer be minimally reliant on foreign nations for critical materials or manufacturing. This provision helps to ensure energy security within Ohio by preventing geopolitical and economic conflicts with foreign nations outside of PUCO’s control don’t compromise the stability and reliability of the power supply.
- To establish security for people dependent on electricity for their daily lives, future rate cases and proposals for power expansion should restrict generation growth to those energy sources that are “readily available 24/7.” Power sources dependent upon the vagaries of the weather (wind) or the time of day (solar) have been pushed by Big Tech and AEP in the past, but intermittency does not make for a secure, reliable power grid – a fact that Big Tech is increasingly recognizing while calling for special carve outs for themselves in the form of keeping coal plants planned for retirement online or shuttered nuclear plants reopened or new ones built, solely to serve Big Tech’s demand for reliable power.
Alternatively, or in addition to the proposals above, PUCO should consider requiring:
New data centers necessitating dispatchable power to be responsible for its provision, either by contracting directly with the local utility (in this case AEP) for the construction of dispatchable power with the approval for new power sources having to go through the usual regulatory process undertaken by the commission, except for the price that will be negotiated between the utility and the source of the new demand, with safeguards so any cost overruns are not borne by ratepayers in general. Any excess power from the dedicated dispatchable source can be sold onto the broader grid at wholesale rates, with the profits of those sales spilt between the utility and the demanding source, per their contract.
If new data centers requiring dispatchable power cannot come to an agreement with the local utility to construct new dispatchable power, they may submit their own plan to the commission for how they will develop and deliver that power. Any dispatchable power source they construct and maintain will have to comply with the same environmental, safety, and health regulations utilities operate under, and any excess power generated by the new source, if connected to the grid, can be sold to a contracting utility at an agreed upon price.
In conclusion, we think neither AEP’s proposal nor Big Tech’s “settlement” meet PUCO’s mandate to “assure all residential and business consumers access to adequate, safe and reliable utility services at fair prices, while facilitating an environment that provides competitive choices”
The proposal offered above would help protect the power system, power users, rate payers, taxpayers, and PUCO’s authority, better than either of the two proposals.
At a very minimum, after negotiations between the two parties, Big Tech and AEP, they should present their case to be put through the normal regulatory process, complete with “certificate of convenience and necessity” proceedings, requiring the two sides to present their plan to PUCO; a proposal demonstrating that the proposed expansion is necessary to serve the public interest, is not redundant with existing services, and will not unduly increase costs to non-consenting general ratepayers. This plan should have to go through the normal proposal, public hearing, and comment requirements every other certificate of convenience and necessity proposal and associated rate case must go through. The process should be transparent, not negotiated behind closed doors only to be foisted upon utility customers as a whole.
Thank you for considering our comments and concerns.
James Taylor
President of The Heartland Institute
H. Sterling Burnett, Ph.D.
Director of the Arthur B. Robinson Center on Climate and Environmental Policy
The Heartland Institute
Cameron Sholty
Executive Director, Heartland Impact
Fill in appropriate Buckeye Institute Personnel if they join here.
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H. Sterling Burnett, Ph.D., is the Director of the Arthur B. Robinson Center on Climate and Environmental Policy and the managing editor of Environment & Climate News.
