Pennsylvania regulators move to protect utility customers from data center costs

By Mike Zimmerman

The Pennsylvania Public Utility Commission’s new model tariff for large-load customers marks an important step for consumer protection from rising electricity costs. The Commission deserves credit for establishing a strong policy designed to shield households and small businesses from the costs of new transmission lines built for large energy users. Now comes the challenge: turning that policy into meaningful action while filling in the many remaining gaps.

A strong standard for assigning costs

Most importantly, the order formally endorses the “but-for” test to assign grid upgrade costs to the large-load customer that triggered the upgrade. Specifically, the order instructs utilities to charge large load customers for system upgrades that “would not have been needed ‘but for’ the interconnection of the Large Load Customer…irrespective of whether other customers would benefit from [the upgrade].” EDF and several other commenters recommended this approach because it provides one of the clearest protections against shifting costs onto existing customers.

The order goes even further by requiring large-load customers to pay these costs up front through “Contribution in Aid of Construction” payments. This decision matters for several reasons. It helps ensure grid upgrades stay with the customer driving them. It avoids utility carrying costs, which effectively function like a 7-8% interest rate on infrastructure spending. It reduces the administrative burden of tracking large-load customers’ long-term payment obligations. And combined with other model tariff provisions that would require large load customers to make minimum monthly bill payments, it helps ensure that those customers also contribute toward the costs of the existing utility system.

Many states are considering rules to assign costs to large-load customers; Pennsylvania may be the first to direct large-load customers to pay these costs up front.

Turning policy into savings

Still, translating these principles into real customer savings will require continued leadership and oversight, for several reasons. First, the order is not binding. It provides optional guidelines that utilities may adopt (or not) in future proceedings. EDF looks forward to working with other advocates to ensure that utilities build upon the strongest elements of the framework.

Second, implementing “but-for” cost allocation will not always be simple. Determining which customer(s) triggered a transmission upgrade can be technically complex and difficult to track. Many of the relevant discussions occur deep within PJM subcommittee meetings that most consumer advocates lack the resources to monitor closely. State regulators will play a critical role in scrutinizing these decisions and protecting customers from unfair cost shifts.

More work ahead on flexible demand

The order did not make significant progress on “non-firm” or “interruptible” service, which allows utilities to curtail electricity to large-load customers during periods of grid stress. Expanding interruptible service is one of policymakers’ most effective tools for limiting near-term grid costs tied to data center growth. But these structures are highly complex and can be controversial. Rather than creating a new framework tailored to large loads, the Commission opted to rely largely on utilities’ existing interruptible service tariffs, which will often not be a good fit for large loads. Policymakers and advocates still have significant work ahead to unlock the full potential of this approach in Pennsylvania.

Protecting vulnerable customers

The order also requires large-load customers to contribute to utilities’ low-income customer assistance programs. This is an important step. Large-load customers are driving up system costs and rates, and it’s reasonable for them to assist the households most vulnerable to higher energy bills. However, the order only reallocates existing funding, rather than increasing total program funding to keep up with rising costs associated with large loads. The order also recommends a tiered payment structure for large-load customers that will probably require further refinement. These questions will need to be addressed in future utility proceedings.

A new path for grid upgrades

Notably, the order recommends allowing large-load customers to build certain grid upgrades themselves rather than waiting for utilities to complete the work. The Commission acknowledged this as “an out-of-the-box proposal” – while self-build options already exist for electric generators, Pennsylvania may become the first state to extend this concept to transmission-connected consumers. Utilities (understandably) raised concerns about safety and oversight, but the Commission determined – and EDF agrees – that these concerns can be addressed. If implemented carefully, self-build could help accelerate grid upgrades by leveraging the financial resources of large-load customers.   

The work is just beginning

Overall, the Commission’s order establishes an important foundation for protecting customers from some of the risks of large loads. It also makes clear that much more work remains. In her comments on the order, PUC Vice Chair Barrow urged utilities “to be bold in crafting rules that offer more complete solutions” to the challenges posed by data centers. She is right. Legislators, regulators, utilities and fellow advocates all have a role to play in ensuring the rapid growth of large-load customers strengthens the grid without driving up costs for Pennsylvania families and businesses.