Market-based energy reforms let AI industry power itself

By EPN Staff

State policymakers are making it easier for AI data centers and other large energy users to build their own off-grid power plants by exempting them from state utility regulations.

So-called Consumer Regulated Energy (CRE) allows companies to generate electricity for their own use instead of relying solely on utilities or waiting years for new grid connections. CRE goes beyond traditional “behind-the-meter” (BTM) systems that often remain tied to the regulated grid.

Why it matters

The surge in large-load projects like data centers has fueled concerns that their electricity demand will strain utilities and drive up costs for everyone else. Some states have tinkered with rate classes and other ways to charge large users. 

CRE offers a market-based alternative, allowing private developers to operate outside regulatory control to quickly meet their own energy needs, without adding to public-utility rate bases or waiting years for interconnection upgrades. 

CRE projects could help ease pressure on the grid and protect everyday ratepayers from having to fund new generation and transmission to serve massive industrial loads.

Zooming in

Republican governors are leading the way:

New Hampshire Gov. Kelly Ayotte signed legislation in August that cuts red tape for energy projects that don’t connect to the regulated electric grid. Such off-grid electricity providers will be exempted from oversight by the New Hampshire Public Utilities Commission. 

An op-ed in the Wall Street Journal described the law as “an elegant solution” to growing power needs and predicted companies “will find innovative ways of designing transmission and distribution assets.”

Oklahoma Gov. Kevin Stitt signed a bill in May – passed unanimously – exempting companies that generate electricity for their own use from being regulated as public utilities, provided they don’t sell power to the public. The law allows data centers and manufacturers to build on-site natural gas plants or other private generation projects without going through state utility commissions.

The chairman of Citizen Capital, which finances development in Oklahoma, called the measure “the most important economic development bill in the history of the state” and said it “puts Oklahoma in play for billions of dollars in private investment.”

Utah Gov. Spencer Cox signed a bill in March that allows large-load customers to enter into “closed private generation systems” or private generation contracts independent of the regulated utility. Such closed systems are exempt from utility oversight or regulation as a public utility. 

Yes, but

Existing utility providers have expressed concern that they may be compelled to purchase or credit excess electricity generated by these large-scale operations, similar to how smaller retail customers with rooftop solar installations receive compensation for unused power fed back into the grid. They caution that such requirements could create imbalances in cost-sharing and grid management.

At least some data centers see this as only a short-term solution, ultimately wanting to enjoy the resources and reliability of the grid. 

"We're not in the power business," Digital Realty CEO Andy Power told the Wall Street Journal. "We're building these bridges to allow the cavalry to come up with the transmission or other pieces of the puzzle that they may need to provide power."

The bigger picture

Things are changing at the federal level, too. 

Energy Secretary Chris Wright issued a notice in October that directed the Federal Energy Regulatory Commission (FERC) to expedite grid connections for large electricity users that agree to curtail their energy use during periods of high demand, as well as for large users with behind-the-meter power plants.