AEP Ohio Proposes New Utility Tariff for Data Centers to Offset Infrastructure Costs
American Electric Power (AEP) subsidiary AEP Ohio filed a settlement agreement with the Public Utilities Commission of Ohio (PUCO) and key stakeholders on Oct. 23 to address the costs of power infrastructure improvements required for Ohio’s rapidly expanding data center industry.
The agreement, which is subject to review and approval by PUCO, sets a precedent in Ohio. It is likely the first of its kind to introduce structured tariffs for new large-scale data centers, requiring them to pay for up to 85% of their projected energy use each month—even if they use less—to cover the cost of infrastructure. “It also creates a sliding scale that allows small and mid-sized data centers more flexibility,” AEP noted on Oct. 23. “And it requires data centers to provide proof they are financially viable and able to meet those requirements, as well as to pay an exit fee if their project is canceled or unable to meet the obligations outlined in the electric service agreement contract.”
Several key stakeholders joined AEP Ohio in the settlement agreement, including PUCO, the Ohio Consumers’ Counsel (OCC), the Ohio Energy Group (OEG), Ohio Partners for Affordable Energy, and Walmart.
“Ohio’s economic success in bringing data centers to our state comes with immense demands for electricity, and we have to meet those efficiently and responsibly,” explained Marc Reitter, AEP Ohio president and chief operating officer. “The agreement insulates our other customers—including residents, small businesses, manufacturers, and other industries—from the impact of the necessary infrastructure improvements.”
Setting a Precedent for Data Center Energy Use Costs
AEP’s Joint Stipulation and Recommendation, filed with PUCO on Wednesday, addresses a core concern from the power industry: How it will financially sustain the growing energy demands of data centers without imposing undue costs on other customers—residential, commercial, and industrial—while maintaining the reliability and sustainability of the grid.
While projections across the industry vary, the consensus is an exponential expansion of data centers to meet the nation’s growing digital needs will dramatically ramp up power demand. Consulting group McKinsey in September estimated power demand from data centers in the U.S. could increase by 400 TWh by 2030, at a compound annual growth rate (CAGR) of 23%.
McKinsey further notes that “Data center load may make up between 30 and 40% of all net new demand added until 2030,” alongside growth arising from domestic manufacturing, electric vehicles, and electrolyzers. Providing “the more than 50 GW of additional data center capacity needed in the U.S. by the end of the decade would require an investment of more than $500 billion in data center infrastructure alone,” it underscores.
Energy giant AEP, like other power companies, has begun to assess how the industry could feasibly ramp up its power generation and delivery structures to support that growth.
AEP Bracing for Up to 9 GW of New Load Growth in Central Ohio
In direct testimony, AEP Ohio Vice President of Customer Experience Lisa Kelso suggested data center load in central Ohio has grown from 100 MW in 2020 to around 600 MW in 2024. While AEP Ohio has so far been meeting that demand with signed agreements, the company projects data center loads will rapidly accelerate to reach 5 GW in Central Ohio by 2030. “Central Ohio’s total load will more than double from approximately 4,000 MW to 9,000 MW over the course of a decade, and AEP Ohio’s Top 5 customers will all be data center customers by 2030,” she said. However, “AEP Ohio has received inquiries and preliminary requests for service from over 50 customers at over 90 sites totaling more than 30,000 MW,” she noted.
Kamran Ali, American Electric Power Service Corporation vice president of Transmission Planning Analysis, in testimony noted Central Ohio transmission region is already “heavily dependent on the transmission infrastructure” to meet its power demand, given that there is not generation currently located inside central Ohio controlled by organized wholesale markets. Accommodating new load growth could require new lines, which are costly and time-consuming to build. “PJM has recently approved over $5 billion of projects in the Dominion and First Energy territories to help serve over 7,500 MW of rapidly developing load in northern Virginia and Washington, D.C. area by constructing or rebuilding long 500 kV lines into the region and various other upgrades,” he noted.
While AEP Ohio initially filed its application with PUCO in May 2024, following a comment period in June and July, the case has involved extensive discovery, with 15 parties filing testimony by September. On Oct. 17, PUCO held a prehearing conference, which led to the stakeholders’ filing of the joint stipulation.
Introducing a New Data Center Tariff
The agreement essentially introduces a new tariff (the schedule data center tariff [DCT]) that applies to data centers that use more than 25 MW of power at a single location. The tariff consolidates a previously proposed mobile data tariff (that applied to entities like cryptocurrency miners). Notably, existing data centers with agreements signed before the tariff goes into effect are “grandfathered” unless they expand their capacity by more than 25 MW. It also introduces a “sliding scale,” which allows more flexibility for smaller data centers, with the goal of accommodating different types of operations without imposing overly restrictive terms.
The agreement will require data centers to sign contracts for a period of up to 12 years. That includes a four-year period to allow data centers to ramp up their load, with progressive requirements for capacity use (50% in year one, increasing to 90% by year four). The measure is designed to allow data centers to scale up their operations while ensuring power company infrastructure investments are aligned with actual demand growth. However, data centers must commit to paying for 85% of their contracted capacity each month—even if they use less.
As a crucial guardrail, data centers must prove that they are financially capable of meeting their power needs before signing contracts. Proof includes, for example, submitting guarantees or other forms of financial collateral to protect AEP Ohio and its customers from the risk of failed projects.
If a data center cancels or fails to fulfill its obligations, it is required to pay an exit fee. After five years (plus the load ramp period), they may exit by paying an exit fee equivalent to 36 months of minimum charges. And, if a data center wants to reduce its contracted capacity, it can assign up to 25% of its load to another data center.
“Because the new tariff is focused on the retail impacts of major transmission investment, and to avoid any over-recovery of transmission costs by AEP Ohio, AEP Ohio will create a regulatory liability, with carrying costs at AEP Ohio’s Weighted Average Cost of Capital, for any exit fee revenue or any revenue collected from customer collateral,” the agreement notes. Under those circumstances, AEP Ohio will advance a proposal to PUCO for approval to flow the funds back to the benefit of retail customers over the remaining term of the data center customer’s contract.
The settlement agreement notably seeks to lift a moratorium on new data center agreements in Central Ohio that AEP placed in March 2023 so it could address the impacts related to the massive load growth. It outlines a structured process for new data centers to request load studies and join AEP Ohio’s queue for service once the moratorium is lifted. The agreement suggsts prospective data centers will be required to provide specific details about their location and power needs, and they will be required to pay for these studies to assess the feasibility of adding them to the grid.
AEP’s goal throughout the process “has been to provide customers with protections, while keeping Ohio an attractive place to run and grow a business,” Reitter noted on Wednesday. “This proposal provides that balance and was developed with PUCO staff and consumer advocates. I’m grateful for the hard work of all of our stakeholders.”
Data Center Coalition Pushes Back, Citing Economic Risks and Regulatory Concerns
Following AEP Ohio’s settlement filing, the Data Center Coalition (DCC), a membership association for the data center industry that includes several tech giants, issued a statement expressing concerns over the settlement agreement’s potentially “chilling” effects on the data center industry and Ohio’s economic climate. DCC President Josh Levi argued that AEP’s approach could discourage investment by imposing high costs on data centers and adding regulatory hurdles for behind-the-meter energy generation. Levi pointed to an alternative, the “Customer and Supplier Stipulation,” which some of the coalition’s members filed on Oct. 10, which he said was crafted with support from a majority of intervening parties, including data center operators, manufacturers, energy suppliers, and other industrial customers.
“Rather than joining a reasonable path forward, AEP Ohio has filed a competing Stipulation in which they continue to propose a tariff that targets data centers for disparate treatment and flatly reject opportunities to explore new cost-savings measures, such as grid-enhancing technologies, which would reduce the risk of system overbuilds while also providing meaningful reliability benefits to the AEP Ohio system,” Levi said. “At a time when the utility, data centers, and all customers should be working collaboratively to address and resolve the challenges ahead, AEP Ohio has opted to ignore the proposed solutions offered by a majority of the parties in favor of a heavy-handed approach that creates an unprecedented level of regulatory uncertainty, stifles innovation and ultimately risks harm to Ohio’s economy.”
Levi said AEP’s stipulation, like its original application, “is not backed by any meaningful analysis, and instead imposes arbitrary terms on specific customers without demonstrating any corresponding benefit to the system or other ratepayers.” Arbitrary regulations “proposed by a monopoly utility should be a concern for all customers,” he said.
The DCC’s alternative stipulation proposes a more balanced approach that includes increased minimum demand charges, longer contracts, and new collateral requirements for large customers to protect other ratepayers from shouldering the costs associated with speculative projects, he suggested. The alternative was signed by a diverse group of companies, including Amazon, Microsoft, Google, Meta’s affiliate Sidecat LLC, Constellation Energy, and various energy and industry groups such as the Ohio Manufacturers’ Association Energy Group, the Ohio Blockchain Council, and the Retail Energy Supply Association.
“DCC remains committed to an evidence-based solution that enables right-sized investment to serve all customers while also supporting growth across all sectors of the U.S. economy,” Levi said.
Levi also highlighted the economic contributions of the data center industry, which he described as crucial to Ohio’s economy, supporting nearly 62,000 jobs in 2021 and contributing billions in tax revenue. “No utility in Ohio or across the country—even those in markets with far more data center development to date—imposes similar terms on data centers,” he noted.
—Sonal Patel is a POWER senior editor (@sonalcpatel, @POWERmagazine).
Updated (Oct. 25): Adds comments from the Data Center Coalition, which has opposed AEP Ohio’s proposed tariff.