Ratepayer advocates hail ‘landmark’ settlement with data centers, utility company

This article was originally published by Indiana Capital Chronicle.

Ratepayer advocates are celebrating a Friday settlement with three of the state’s largest incoming data centers and Indiana Michigan Power (I&M) — touting new protections for Hoosier bills and the state’s electricity supply.

Amazon Web Services plans to spend $11 billion on a data center near New Carlisle, while Google is working on a $2 billion data center in Fort Wayne — and both need plenty of power from I&M.

Also included in the settlement was Microsoft, which has announced a $1 billion data center project in La Porte. That’s in Northern Indiana Public Service Company (NIPSCO) territory.

The three data center signatories agreed to each provide $500,000 annually for five years to the Indiana Community Action Association. The money will support low-income Hoosier customers, like weatherization efforts.

“I&M looks forward to working with some of the leading technology companies in the world that have chosen to locate in northeast Indiana. It is an exciting time for our region and I&M is committed to doing our part to support these customers as they bring investments and jobs to Indiana,” President and CEO Stever Baker said in a news release. “I&M has the responsibility to serve the new customers, while also protecting existing customers, including residential, small business and those within other industries, from impacts related to necessary infrastructure improvements required to serve these customers.”

The agreement sets out new contract, payment and other requirements. But its terms don’t stop there.

If state regulators approve the nondiscriminatory settlement, it’ll also apply to new industrial customers with large electric loads.

Indiana Utility Consumer Counselor Bill Fine — whose agency advocates for all utility customers — said data centers will have a “critical role” in Indiana’s future economic development, but require “substantial increases” in power generation and transmission infrastructure.

“The terms in this agreement will ensure a balanced approach as those investments are made,” he said in a news release. “(They’ll) protec(t) residential, commercial, and industrial customers from bearing the costs of new infrastructure necessary to serve new, large-volume customers.”

Kerwin Olson, leader of utility watchdog Citizens Action Coalition (CAC), highlighted the agreement’s “significant protections” and transparency provisions. Program Director Ben Inskeep, meanwhile, lauded the “landmark” arrangement on X.

An industry membership organization, the Data Center Coalition, was another party to the accord.

Timelines, minimums and collateral

The terms applies to industrial customers that need a lot of electricity from I&M to power their efforts: contract capacity of at least 70 megawatts at an individual plant or 150 megawatts in aggregate. They’re dubbed “large load customers.”

The settlement starts by stretching out contract timelines. The minimum for a large load customer on I&M’s Tariff Industrial Power would be 12 years. They could choose to add an additional “load ramp period” of up to five years.

That’s much longer than the current minimum of two years, according to Inskeep. He wrote that the change provides greater certainty that big users will stay longer and pay for costs.

The companies also agreed to several payment-related changes.

Monthly billing demands are taken monthly, as the energy consumed during the single-highest 15-minute peak demand period. But monthly billing demand can’t go under 80% of the large load customer’s contract capacity or 80% of the company’s highest monthly billing demand from the last 11 months. That’s up from the current 60%, Inskeep said.

Big users also face higher minimum charges monthly.

Inskeep said that a “very large” data center demanding 1,000 megawatts would expect to pay $492 million for power annually. Under the settlement’s formula, he estimated that they’d pay a minimum of $332 million, regardless of electricity usage — versus the current minimum of $173 million.

The boosted minimum ensures that data centers and other big users “will be paying back the costs of the very large investments I&M is making to serve them, even if (they) use much less power than originally planned,” Inskeep wrote.

The settlement goes on to establish collateral requirements.

The money is proof that big customers can pay their bills, and acts like insurance for I&M in case one can’t.

During a contract’s first year, large load customers would have to hand over 24 times their maximum expected monthly non-fuel bill. After year one, it would be 24 times the previous maximum.

Collateral would get recalculated annually, and customers would have to supply the updated amount if it’s 10% — or more — higher than the current amount held by I&M.

They’d have three ways to provide collateral:

A guarantee from the customer’s parent company or corporate affiliate for the full amount, as long as the entity has high credit ratings and lots of money — at least 10 times the collateral requirement.A standby irrevocable letter of credit for the full amount, issued for at least a year by a bank with high credit writings. The customer would need to renew it at least 30 days before expiration.The full amount, in cash.

Large load customers with high credit ratings and lots of money are exempt. Those without the credit ratings but enough liquidity are half-exempt — up to $250 million off the requirement.

Downsizing, exit fees and more

The settlement does let big users reduce their contract capacity after five years — without facing penalties.

Large load customers would have to give I&M at least 41 months written notice prior to the delivery year in which the reduction would occur. They’d be capped at a 20% reduction unless they and I&M agree on something higher.

There’s room for more extreme actions, but at a cost.

A large load customer could end its contract after five years, or reduce its contract capacity by more than 20% as long as it gives 42 months written notice and pays potentially hefty exit fees.

The settlement also includes smaller provisions:

• A prospective big user would cover the costs of a full planning study necessitated by its addition to the grid.
• Collaboration on a potential “clean transition” tariff letting participants support investment in carbon-free electricity resources. It would be covered by participants themselves.
• At least one meeting on I&M’s emergency response procedures — like last-resort power cuts — and if the utility needs to make changes to its procedures because of big users.
• Semi-annual reports from I&M to state regulators with information on how much the utility has spent to serve big users, contract termination fees, notices of reduction to contract capacity, and so on. Some data would be confidential, but the settlement parties agreed to collaborate on public versions of the reports.
• I&M is set to conduct a study evaluating the potential of technologies that maximize electricity transmission.
• I&M will meet with stakeholders to talk about interconnecting its large load customers.

Olson, of CAC, highlighted the settlement’s “unanimous” nature.

“We know legislation regarding data centers and large load customers will be discussed during the upcoming legislative session, especially in the context of ensuring they pay their ‘fair share’ and other ratepayers are protected,” he wrote via email. “Considering this is a unanimous settlement between the utility, large load customers, and consumer advocates, we would hope that the legislature would use the terms in this settlement as a template to inform that policy discussion.”

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