Get off my grid. One of the knocks against data centers is the increase in utility bills and pollution caused by data center energy consumption. The issue of who should pay utility rate increases caused by data center consumption is so clear that it wouldn’t warrant discussion—if everyday Americans weren’t being saddled with the bill. Welcome to Bring Back the Bustle, a podcast about revitalizing rural America. I’m Shavon Jones, your host.
I’m also a lawyer. When the court system has to make a policy decision about who should pay a bill, judges usually place the burden on the party best able to pay. As between tech companies and ordinary American families, the party in the best position to shoulder these costs is the tech company or data center operator. But that isn’t what is happening.
That may be because the issue isn’t before a court (yet). For now, the question is still being left to private companies and state utility regulators, although some in the federal government think it may be time to nationalize utility rate setting.
As for the pollution caused by fossil fuel energy generation, how the government views the issue changes based upon who is in office. Democrats tend to favor clean, renewable energy while republicans can be skeptical of climate change and dismissive of environmental justice concerns—although I don’t hear any of the skeptics asking for plants to be built near their personal residences.
Episode Overview
This is episode 10. I’ve already told you that we at the Rural Fund like data centers. Our entire business model is built around investing in towns where data centers locate because we think they are a great way for rural America to replace the industries that left decades ago.
But that doesn’t mean that the energy needed to operate those data centers should be paid for by the poorest communities in our country—not in terms of higher utility bills or higher pollution levels. Not if we can help it, and we can.
In this episode, we’ll discuss energy policy. We’ll talk about the role of utility regulators, the reasons they are giving us for allowing the cost of data center energy to be shifted to ordinary Americans, and who has the power to change this.
Then, we’ll do a second episode next week covering clean energy alternatives, how you can invest in them through the Rural Fund, and the role they can play in improving health outcomes if not in reducing rates. Because unfortunately, clean energy isn’t cheaper in the short term when you’re paying your utility bill. But it is cheaper in the long run due to lower health costs.
So today, we’re talking about the politics of energy and next week we’ll talk about how to get a piece of the extra money that is being paid to generate power for data centers.
The Grid Isn’t Getting Any Bigger
Before I jump into a discussion of energy policy, let me clear up a myth. I hear people on main street say “the data center is building their own grid so it’s not going to cost us anything.” Here’s the truth. North America has two major grids and 3 minor grids for the entire continent. One of the minor grids is the Texas grid. You probably remember hearing something about it failing during a cold winter in 2021. The truth is the Texas grid fails regularly during extreme weather conditions—when it is most needed. Outside of Texas, the remaining American population is on the main grids, which we share with Canada and Mexico.
As a continent, we’ve paid about as much attention to energy infrastructure as we’ve paid to transportation and other infrastructure—meaning very little. The examples of bridge collapses and of undrinkable water flowing through lead pipes (remember Flint, MI) are evidence of our neglect.
When it comes to infrastructure, industry, and the environment, we don’t get out in front of the problem. That’s the case no matter who is in power. Republicans give the money back to the taxpayers in the form of lower taxes. Democrats pursue other priorities such as health care. I’m not saying those other priorities are wrong. I’m just pointing out a fact. With the exception of the bipartisan infrastructure bill that passed during the Biden Administration, we tend not to address infrastructure until it becomes a health, safety and/or public relations crisis.
That’s the case with the different grids that are cobbled together to form our continental power grid. The power grid is largely the same as when the father of electricity, Thomas Edison, and other energy pioneers, designed it over 100 years ago. I know all of this because I had scientists and historians at the Edison museum explain it to me.
So, here’s the myth I need to clear up—if you hear that a data center is building its own plant, that does not mean the data center won’t be on the same grid. The new plant will be on the same grid as your house or business. Here’s what it also does not mean. It doesn’t mean that the special plant being built for the data center won’t cost you anything. It will. Even though your house won’t get to use the plant, you still have to pay for energy to be transmitted from the grid to the plant that you aren’t using.
Your bill will increase when new capacity is added (i.e., when new plants are built). That’s because transmission infrastructure is different than power generation infrastructure. So, the data center is paying for power generation infrastructure (the plant or the new capacity), and the utility company is making you and me pay for the transmission of the energy from the grid to the data center’s plant rather than making the data center pay for the energy it is ordering and using.
What’s the Argument for Sharing the Cost?
Why is that? I mean, if I say I want more steak, cattle ranchers aren’t going to spread the cost of raising cattle across all beefeaters. I have to pay for what I consume. Well, the energy companies argue that the cost of energy transmission should be borne by all customers because natural disasters cause some power failures. Individual families or communities cannot afford to cover the cost of restoring energy after a natural disaster. So, transmission costs should be community costs.
That’s a valid point. Pacific Palisades can’t afford to pay for all the damage caused to its utility system by the wildfires last January—all those power lines and whatever else that was burned. Asheville, North Carolina can’t afford to pay for the damage the floods caused to their power transmission system last year. And Florida gets pummeled by a hurricane at least once every 24 months. We lose power for days on end, and I’m sure there is utility infrastructure damage as well. So I get the natural disasters argument.
But the data center industry is operated for-profit. They are voluntarily consuming more energy products for their own enrichment the same way I’d like to voluntarily consume more steak for my own satisfaction. Therefore, they should pay for any transmission upgrades that their data centers need.
Think about it. In many cases, we’re sending larger utility bills to people who often are already on some form of public assistance even though they work, or used to work before they reached retirement age. They are not in a position to bear the cost of the enhanced energy demand of data centers. And we certainly should not cut off their air conditioning and allow them to freeze to death or suffer heat stroke so data center owners can turn a healthier profit. From an energy policy standpoint, we have to get to where I said the courts would get if the issue were before them—we have to place the cost on the party best able to bear it.
Why Aren’t Regulators Stopping Us from Being Billed?
Utility companies are private, regulated companies that provide a necessity. They are regulated by state Public Utility Commissions (PUCs). Your state PUC may be independent or it may be part of the Governor’s administration. For example, in Georgia’s elections earlier this month, two Democrats won PUC seats that had been held by Republicans. That can’t happen in Florida because Florida PUC commissioners are appointed by the Governor. Florida has not elected a democratic governor since the 1990s.
So, a state’s energy policy can be determined by its governor. Voters elect a governor based on dozens of issues, not just energy policy. On the other hand, energy policy can be determined by a board of commissioners who have to stand for election and are, thus, directly accountable to the people.
Whichever process applies to your state, each PUC has specific regulatory authority. That authority usually involves setting rate caps, issuing permits, and considering energy purchase agreements between the utility company and the government.
However, the PUC does not control other aspects of a private utility company’s business. Remember, a utility company is a private, for-profit company that is regulated to prevent it from exercising monopoly power over a necessity like electricity.
The PUC doesn’t control agreements between the utility company and a data center. Think about how other private companies work. Your business, for example. Your goal is to get the largest contracts you can get, and you’ll make certain concessions to your biggest customers. That seems to be what’s happening. The utility companies are making deals with data centers to pass the cost of transmission on to you and me. And the PUCs either don’t know how to or don’t want to stop them.
Think about which issues you consider when you’re voting. How high up is energy? And if your PUC is elected, do you even go that far down the ballot? Do you research their positions before you choose or do you choose based on your party affiliation?
Should the Feds Fix It?
The federal government (i.e. the U.S. Department of Energy) is not involved in rate-setting. That’s done on a state-by-state basis even though the grid is predominantly national and continental.
Some democrats are floating the idea of having national rates. Dems want to preempt or overrule the decisions of state PUCs and force them to place the cost of new energy generation on the data centers which are able to bear the cost much more than individual households can. But since the dems are not in power in Washington that’s not an immediate fix. It’s just an idea. Their idea is the same as what I said courts would do. But if we’re expecting the political branches to implement the idea, it often takes more than winning elections. It also takes have the fortitude to do something once you have won. I’m not an activist. I’m an explainer. I’m just explaining how the system works. You can do with that information whatever you choose.
Are There Alternative Ways to Power Data Centers?
There are different ways to generate energy. Fossil fuels (such as gas or coal), wind, water, and nuclear are all power generators. The power they generate can be transmitted to your home or business to create electricity.
But two points. First, PUCs regulate all energy, not just electricity. Second, there will be transmission costs no matter which energy source is chosen. For example, some listeners may have solar panels on your homes. If that’s the case, you may be paying your electric company for energy transmission at night when the sun isn’t shining.
So, the benefits of alternative energy are not avoiding PUCs or reducing prices for everyday energy usage. Rather, having energy choice reduces the monopoly held by electric companies. This could address how data-center-related transmission costs are financed.
Moreover, renewable energy can altogether eliminate toxins that are generated by fossil fuels. We can get to zero carbon emissions. It is widely believed within the medical community that shifting to renewable energy could reduce cancer and other chronic diseases among vulnerable populations in whose communities fossil fuel plants are located.
Now, with all of that background, I’m finally at the point where I can discuss how we at the Rural Fund can make money investing in renewable energy. But that discussion would take 15 minutes. So, I’m going to save it for a separate episode.
Summary
Let me summarize today’s episode. We have a century old electrical grid that hasn’t seen much investment. Although we’d like data centers to get off our grid, that’s not possible. The grid is the grid. The entire North American continent has to share it.
Your electric bill consists not only of the amount of energy you use but also a share of the transmission infrastructure. Some of the transmission infrastructure you pay for is for natural disasters such as wildfires, hurricanes, tornadoes and floods. But some of the transmission costs you pay for is to transmit energy to data centers.
Public utility commissions determine the maximum rate the utility company can charge. Some PUCs are part of the state governor’s administration while others are independently elected. The data center consumption issue is really only now stepping into the forefront with inflation being so high and with so many data centers being built. So, we’re going to see how PUCs, and possibly the federal government, begin to address the issue of placing the cost of utility upgrades on the party best able to afford it.
Whomever is paying for it, more energy is being purchased around the world because of data centers. So, we here at the Rural Fund (and our website is ruralqrof.com) are looking to invest in energy companies operating in the data center towns where we have other investments. We will talk more about how our utility investments might look in our episode next Monday. I’m looking forward to it, and I hope you are as well.
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