Lucas Fykes: I think we counted 32 connected devices, and that's with me and my wife both working remotely from home and having two daughters, one 10 and one 7, who each have their own devices and their own watches. We have thermostats that run through data centers. Your refrigerator can now be set through data centers. You can now turn on your oven to bake whatever thing that you're baking remotely while not even being at home, and that is all driven by data centers.
Teri Viswanath: Hello. That's Lucas Fykes with the Data Center Coalition. As our lives and economies move online from banking and healthcare to education, commerce, and AI, society has become increasingly dependent on data centers as the behind-the-scenes infrastructure that keeps essential digital services running 24/7, but how do we achieve community balance?
I'm Teri Viswanath, your co-host of Power Plays, a CoBank podcast dedicated to improving the lives of people living in rural communities. So this is a topic of interest to us.
I'm also joined by my colleague, Tamra Reynolds, a managing director here at the bank. Hey, Tamra.
Tamra Reynolds: Hey, Teri. We both attended NRECA's PowerXchange earlier this year at the beginning of March, which is a concentrated forum to exchange ideas and lessons learned on challenges that directly affect local and often rural communities, including major infrastructure investment decisions that shape economic development and quality of life. That's actually many electric co-ops' mission statements. Increasingly, the opportunity knocking for electric cooperatives today is in the form of data center development.
To strike a balance between development and quality of life, community leaders can pair “yes-if” economic development with enforceable safeguards, clear zoning and performance standards, generator emissions and noise limits, transparent water and energy plans, and community benefit agreements, while also ensuring cost-causation protections, specifically so that system upgrades and long-term risks don't shift onto the existing ratepayers.
Viswanath: Tamra and I wanted to share an important conversation that took place at this year's flagship gathering for electric cooperative leaders. Getting us started off is Allison Hamilton.
Allison Hamilton: Welcome to Data Centers Demystified, what they are and why they matter. I'm Allison Hamilton. I'm with the business and technology strategies team at NRECA Data Centers. They went from being a niche sector of the digital economy to driving the most significant electricity demand we've seen in decades. There's a lot of myths and a lot of misperceptions about data centers. Are they good for the economy or the local community, or are they pushing up rates and creating an affordability crisis? Could they potentially increase system utilization and put downward pressure on rates? What about reliability and water use, and other community resources?
To help us separate the myths from the facts, we have a lawyer, an economist, and an engineer. First, we're going to hear from Lucas Fykes. He's with the Data Center Coalition, our lawyer, and he's going to provide an overview of data centers, data center basics, and some national trends. Then we're going to hear from Teri Viswanath from CoBank. She's our economist. She is also a lawyer, but today she's wearing her economist hat. She's going to go a little bit deeper into data centers, how they impact the community, the resources they use, and the impact on electric cooperatives.
Then finally, we're going to hear from Sean Middleton. He's our engineer and the CEO and president of Rural Electric Convenience Cooperative. They're a relatively small co-op in Illinois, and they are working with a large data center. With that, I'm going to let Lucas get us started.
Fykes: Within our membership, we have two types of data center owner and operator companies. One group includes what we term as an enterprise, or is more commonly known as a hyperscale facility. Those companies build facilities for their own operations. These would include the largest companies like Google, Microsoft, Meta, and Amazon. The other group of owners and operators that we have in our membership are what are termed multi-tenant data centers or build-to-suit companies.
One important point regarding energy for these different facilities is for a self-performing facility, energy costs are a line item in their operating expenditure. For a multi-tenant build-to-suit companies, energy costs are passed through to the end-user customer.
Now, to keep these services online, data centers require 24/7 power with contractual obligations for 99.999% uptime. Accordingly, you'll also see onsite generation, which is mostly in the form of diesel backup generators ready to activate in the event of an outage from the local utility.
The phrase, "data centers never sleep," is not just catchy. It reflects the fact that digital demand is constant. Even when one part of the country is asleep, another is active, and automated systems are still running everywhere.
That matters because the infrastructure behind this activity has to be available at all times. You cannot really pause a data center the way you might shut down other kinds of facilities after business hours. It also helps to explain why reliability is such a central issue for this industry. Our digital economy runs nonstop, and data centers are the physical backbone making that possible, even when most people never see that work happening.
Now, the common question we hear is whether the growth from data centers is real. In 2023, the data center industry directly supported over 600,000 jobs, which was a 51% increase since 2017. All this information comes from a report that was put together by PricewaterhouseCoopers. When you include related roles and indirect effect, total employment across the sector nears 4.7 million jobs. Total labor income reached $404 billion in 2023, representing a 93% increase from 2017. During that same time period, data centers contributed $3.5 trillion to the US GDP. Finally, in 2023 alone, data centers generated $162.7 billion in federal, state, and local taxes.
Viswanath: Community acceptance is going to be critical for the development of, well, really anything in our communities, but in particular for data centers. There's a real concern that the local community impact, the use of water, the use of power, it's heavy. The benefits of that compute power might lie outside of the community. There's a real concern about what the trade-off is between the price paid locally and what those communities actually see. All of a sudden, we're starting to hear community opposition.
Virginia has led data center capacity additions for a long time. Well, about a year ago, all of a sudden, Georgia caught up, predominantly because of those tax incentives. There are now eight county-level moratoriums for building data centers in Georgia, taking a time out to really assess that exchange. I think we have to do a good job here because part of it is there's a lot of benefits we need to consider. There are also a lot of costs that need to be considered as well.
First of mind and top of mind is that, guys, we've been here before, and I'm hoping we learn from those lessons. If we think about there were considerable utility write-offs that occurred. Bonneville Power Authority in 1995 had 3 gigawatts of aluminum smelter capacity. A decade later, 300 megawatts. I hail from Michigan. Michigan DTE had to take a substantial write-off when we had the closure of the Detroit Morainic Assembly Plant. First Energy, Lordstown. We think about the textile plant closures between 1980 and 2000, and the amount that we had to write off because those manufacturing jobs went overseas, the plants followed with them.
I mentioned that the local resource use is significant, and it's not just power, but it's also water. We've gotten really good with resource use in power plants. Lucas, we're getting really good in data centers and our water use as well. Instead of using wasteful evaporative cooling, we're getting good with closed-loop systems. I want to be careful here because air cooling simply will likely mean more electricity use. It's an exchange. Another really important story is the common headline is those data centers are raising my electricity bill. Sound familiar? We have a marketplace that's been under-invested for some time, and all of a sudden, we are hitting the gas pedal on growth.
This is a really good chart. It comes from another Lawrence Berkeley Lab study. What it tells us is that for those states where we actually see a contraction in load, the prices are going up. For states where we actually experience growth, you know what? Their residential bills happen to be lower. It's a simple story here, folks. When you have more shoulders to bear the burden of a fixed-cost system, your bills actually go down. When we have reinvestment in our water systems, reinvestment in our power systems, we benefit. Let's be really clear here. There is a problem when you've got a socialized system, and all of a sudden, you've got a whale of an account come in.
You have a limited amount of supply. Well, costs actually do rise. Making sure that those socialized costs are actually borne by the folks that are causing cost causation, that's going to be really important. When we think about community impact, what's really important here, there are six factors. There's going to be sound, site, setback, power use, water use, and emissions. Those are going to be front in mind because those are going to be community impacts we live with and we need to address. Understanding and making sure we've got clear standards to make sure that the benefits are proportional to the impacts is important. You guys have got to be on your toes, not on your heels on this one, all right?
Sean Middleton: For years, Teri was talking about some of the large loads always ended up in the investor-owned corridors of territory, correct? Early in my career, I remember having many lawsuits with the investor-owned utility over territory rights and skirmishes, especially when a large load would locate, and usually they're picked close to the municipality. Bring on the advent of data centers, and what's changed? Now they need more contiguous land. In our case, the 636-megawatt site needs 280 acres. That's hard to get that much contiguous acreage within an investor-owned footprint.
They're looking at co-op territories. It's not a shocker. Here's a great question for the crowd. How many co-ops or co-op leaders can say you've been approached by a data center? Check it out if you want to look around. We're not alone. It's happening more and more. The question is, are you positioned and are you able to take on the challenge and move things forward? In our case, we did have the Double Black Diamond Solar Farm. As of today, unless it's been eclipsed, it is the largest solar farm east of the Mississippi: 4,100 acres and a 600-megawatt solar facility.
But that advent of renewable generation and the construction effort that followed it has allowed for this new load prospect potential to come our way. We're at a bit of a chicken-and-egg crossroads, which is interesting for our industry. I know we've had these discussions multiple times. We want to see this 1.1-gigawatt natural gas plant go online, but they want a 20-year PPA with any load prospect. The data center prospects we're talking to are looking at a 10-year contract with a bit of continuation built in. We're trying to marry that up with what they have access to from a wholesale basis and what they can get out of a PPA. We have this potential that is being looked at to allow some continued growth in our area.
I just want to talk a bit about the interconnection because to step through that process, we've had to learn a lot over the last several years. There becomes an initial vetting and determination of the creditworthiness of that organization. Of course, we've got to do some due diligence to make sure they have the wherewithal to see this through. As a cooperative, we have an interest from our cooperative members to make sure the investment in our area is going to last.
A company like CyrusOne has the wherewithal, but us and NextEra has been a very lockstep relationship to work through that process of vetting that, managing the inquiries, setting up, in some cases, the process for managing the incoming requests. Ameren Illinois admitted would be the largest single load in their entire footprint. That process has to be managed and organized from the beginning.
The queue process, this is where we were able to leverage relationships with our wholesaler, NextEra Energy, who had team members that work with MISO right there in Carmel, Indiana, on a regular basis. We had to be part of the conversation early on to discuss how this hits their queue. It has to be locally studied from your TO perspective. Then it goes to the MISO queue. It's supposed to be within a month or two once it enters their TSTF, which is called their Technical Study Task Force. Then once it makes it to an agenda, usually within a couple months, you have an approval. We've done this twice now with two of our projects, three, take that back.
They have streamlined. They've been watching PJM so closely to learn from what hasn't worked as much as what has and create a process. I will say our second phase for this project, along with our second prospect, hit the MISO queue at a time when 6 gigawatts hit it at the same time. This was back in last August. Of course, that I call it a log jam that hit their queue. They've had multiple successive periods. It's just like that. MISO is definitely have to get spooled up. I've had some virtual meetings where it was multiple people from the TO, us, wholesaler, MISO, all trying to converge and do the same thing, get this thing to market and figure out a way forward.
Now I'm going to come back to permitting at local, but let me step through physical interconnection because it's another really important point. If it's a $15 million line extension, if you ever had a $15 million line extension, it's a pretty big number. They say we'll pay. Again, there comes back to contractual obligations to make sure that if I'm going to sign on the dotted line with the transmission owner, I also want that to be completely backstopped by the entity that's coming my way.
I also want to make sure that I've handled those logistics and the agreements that allow me to be in the point of origin and allow for the interconnection substation and paying for that, coming up with the O&M potential and the redundancy that you mentioned. What they're basically doing is they're going to feed each phase off its own medium voltage tap along with a high voltage tap for complete N+1 redundancy, and they put 400-some standby diesel gensets on site. That gave the local opposition some consternation, I have to tell you. But they're going to more than meet all the environmental and other proceedings.
I thought it was interesting that one of our local county meetings, they were putting them on the spot over the environmental, and they were saying these diesels, I know they only have to be Tier 2 compliant, but they're making sure they're Tier 4 to go over and beyond any compliance ratings that are having to come our way today. They have to, because the opposition is, it may be a vocal minority, but it's loud. People that have county board seats are concerned about maintaining that and keeping something viable for the communities and everybody involved. Incredibly important piece.
The cooperative has to take a lead role out of the gate. For one, look at your bylaws and your policies. We have an obligation to serve any and all loads that come into our territory. I love one of our board members at our strategic retreat has made this comment. He said, "We need to over-communicate to members." No harm there. I love it. It's one of the things that we have to continue to do. We know how to tell our story, so we've got to tell it well and showcase the benefits.
I've had to testify at multiple of these meetings. One of the questions that's come up, many times, “what's the reliability going to be?” Both your local transmission owner and MISO have fully vetted and approved this. They call it no-harm analysis, no transient harm. It's fully approved through the system. It was already built for this. “Like, oh, okay, what about my rates? Is it going to jack up my rates at the co-op?” As a matter of fact, entities like CyrusOne are very sophisticated, and we're not having to create traditional tariffs like we would at the co-op for other large loads we've seen.
In our case, and NextEra has, of course, been lockstep in helping us fund this process, we're passing through both the LMPs and capacities and market ancillaries at full freight, and the companies that are doing data centers are like, "Bring it on." We can charge a margin or distribution or auxiliary fee on top of that and make something back for the cooperative, our administrative burden, and take it on the risk in the first place. We have incredible partners like CoBank that are going to help us with the cash management solutions we need to deal with revenues we haven't seen before. But we have the right partners. Sounds like cooperation among cooperatives, doesn't it? Love it.
That's what NRECA has helped us with over the years. Being there, speaking loudly and often, and helping the community members that have those reservations has been critical. One of the county board members made a really great point. He said, "Wait a second, we voted through a 4,100-acre solar farm and we're choking on a 280-acre data center."
Sounds like swallow the camel and choke on the tail. Have you heard that phrase before? I don't take away from all the potentials and risks and other. They've made sure that the county ordinances, setbacks, noise ordinances, water usage are there.
The point is when they think they said something to the tune of $100 million in tax revenue over 20 years to local schools, fire protection districts, water or other facilities that are able to take advantage, water facilities, the water co-ops, another huge point. They're locating this thing in an area where it didn't have substantial resources. They don't need the massive water, but they still need some water. The company we have, CyrusOne, immediately started working with the water co-ops to showcase, “listen, you have the resource to get us the water need, but you're lacking on capacity.” They're going to put water storage on their property.
What I'm saying is it's amazing the money they have to bring to bear because of these retail tenants. If you work with them, that's where the cooperative has taken a lead role in saying we can find a path forward because the upside is too great to not see it through. For a co-op, especially in board leadership positions, have you been through your bylaws?
In our case, we're actually going back to the membership this summer at our annual meeting with a new bylaw clause that will allow us a bit of a separation. We want them insulated from the existing cooperative rate base. We're already doing that on a wholesale basis with our supplier, NextEra, but we want some insulation. We want the existing electric membership to be taken care of well. Capital credits, anyone?
Another challenge, make sure that, and this is a whole different level at some point. This sounds like a Power Play podcast or something else in the future, I can just imagine. A lot of details here. We've spent a lot of time with counsel, internal and outside, and our audit teams and other, to get to a point where we can deal with the capital credit impact and what that's going to look like as a massive discount retirement in order to deal with them on an annualized basis and other.
Hamilton: Given the limited amount of time, I'm going to open it up to the audience.
Audience member: As far as the co-op is concerned, do you have any points or advice on cooling the waters and educating the communities?
Middleton: One of the things I start with is, listen folks, your cooperative has been here since 1936. We're not planning to go anywhere. We'll be here through this process along the way. I think it's important to note that if they ended up directly an investor in utilities, they would lose that local advocate in you being the cooperative. They get us further along the side. We have that obligation to serve. We're trying to be there. I think it's very important to keep the messaging on dispelling the misinformation because it can get out of hand in a hurry, where they'll say, "You're going to raise my rates." You're like, "No, on the contrary, we're looking to take that margin that we're going to create because we don't have a big stranded investment that we're going to be stuck with because we're intending to flow through the capital expenditures right to pay the transmission owner. We're looking to utilize that benefit locally and take pressure off."
Viswanath: The financial safeguards, I think, are relatively important. If you're going to have generation behind the meter, there is sound, there is setback, there is site we need to take into consideration, and there are emissions. Emission waivers, we've got to think about this. These are operating as utility-scale generation and need to be treated as such.
Fykes: If it's done right, if you reduce speculation, you bring in large loads, you put the right protections into place to ensure those large loads are going to stick around, they're going to pay their full cost of service, it will put downward pressure on rates, which is going to serve each of your co-ops and your residents, grandma rate payer, whoever it would be. It's going to serve them in the right way.
Reynolds: For our listeners, Teri, I think that the most important takeaway from this conversation is that communities can say “yes” to data centers only if the project is paired with clear, enforceable safeguards and fair cost allocation. Economic benefits like tax base, jobs, and infrastructure don't come at the expense of residents' quality of life, like noise, water, and emissions, or existing members' rates through stranded asset risk and socialized upgrades.
Viswanath: Hey, that's right. As we've detailed on our cobank.com website, under Knowledge Exchange, specifically our Guide for Serving Large Loads, cost causation protections commonly include dedicated facility charges. The data center pays for new substations, line extensions, and interconnection equipment built primarily for its service. System upgrade allocation, if upstream, delivery, that's transmission and distribution upgrades, are triggered by the new load. Well, the tariff for the contract assigns those costs to that load rather than spreading them across everyone else.
Minimum bills and demand charges, upfront security, and exit and early termination provisions. These are just some of the archetype provisions that we are seeing co-ops adopt these days. I think it's important in terms of providing that community balance that we talked about in this program.
Reynolds: I hope all of you've enjoyed this conversation and will join us next month as we discuss NRECA's inaugural Startup Alley competition held at this year's PowerXchange that we sponsored and Teri helped judge. You're going to hear about the latest technology coming to the utility space. Goodbye for now.
