Who Decides What Data Centers Pay for Electricity?

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Transmission investments can take decades to pay off. If a data center closes or uses less power than expected, other customers can end up paying the remaining costs.

That makes the terms of a data center’s electricity service a decision about who carries the risk of building for it. The utility proposes what a large customer should pay; the state utility commission decides whether those terms become the approved rates. Minimum payments, long contracts and financial guarantees help determine how much of that risk stays with the customer.

The utility proposes, the regulator decides

Investor-owned electric utilities are subject to regulation and oversight by state public utility commissions. In Virginia’s Dominion rate review, the utility proposed a separate class for large electricity users. The State Corporation Commission approved the new class, called GS-5, with an effective date of January 1, 2027. State or local utility regulators approve rates reflecting the costs of producing and delivering electricity.

A negotiated arrangement is therefore not simply a private discount when it changes terms under a regulated utility’s approved rates. The important questions are what the customer is committing to pay, what infrastructure the utility is committing to build, and which authority has approved that arrangement.

Ownership changes the decision maker: in Florida, municipal utility rates and revenues are regulated by city commissions. Florida’s rural electric cooperative rates and revenues are regulated by elected cooperative officers. A rule adopted for one investor-owned utility should not be treated as the rule for every city utility or cooperative, even within the same state.

In states with retail electricity choice, customers can buy power from a marketer while a local utility delivers it. Choosing an electricity seller does not remove the need to pay for the network that delivers the power.

Electricity use and grid costs are different bills

Energy charges are based on electricity consumed in kilowatt-hours, while demand charges are based on the maximum power needed during a billing period, typically measured in kilowatts. The first measures how much electricity a customer uses over time; the second helps explain why reserving a large amount of power can matter even when actual use falls short.

Virginia’s Joint Legislative Audit and Review Commission describes generation rates as covering power-plant costs, purchased electricity and payments for generation capacity. Transmission rates recover the costs of building and maintaining long-distance power lines, while distribution rates cover substations, local lines and other infrastructure serving customers. A data center’s electricity purchase can therefore be only one part of the financial commitment needed to serve it.

The Congressional Research Service explains that more electricity sales bring more utility revenue, but rates can still rise if costs outpace that revenue. A large new customer can help spread existing costs across more sales while also triggering expensive new investments. Whether other customers benefit depends on both sides of that calculation, rather than the size of the data center alone.

JLARC published its Data Centers in Virginia report on December 9, 2024. Its study found that the rates then in place appropriately allocated current costs to the customers causing them, including data centers. That finding concerned the cost allocation being studied, not a guarantee about the price of serving future growth.

JLARC also warned that transmission investments can take decades to recover and that, if a data center closes or uses less power than expected, remaining costs can fall on other customers. This is the risk behind long contracts and minimum payments: a utility’s investment can outlast the customer’s plans.

Virginia’s large-user class assigns commitments as well as costs

Dominion’s GS-5 class covers customers with measured or contracted demand of at least 25 megawatts on a contiguous site and a measured or expected load factor of at least 75 percent. Load factor is the ratio of average power demand to peak demand during a specified period. The commission says the separate class allows it to set rates reflecting the unique costs of serving those large customers, minimizing shifts to other classes.

The approved provisions require certain large customers to pay for at least 85 percent of contracted transmission and distribution demand and 60 percent of generation demand. These are minimum demand-payment obligations, not a claim that a data center must consume those percentages of electricity every month. Their purpose is to keep part of the payment obligation in place even when actual use is lower than the commitment.

The service commitment applies to new large-load customers contracting for service on or after January 1, 2027: they must take and pay for service for at least 14 years. The transmission and distribution minimum applies to new and existing large-load customers, but customers that began service before January 1, 2016 are exempt. An existing data center and a newly contracted one can therefore face different obligations under the same policy.

For new large-load customers, the collateral obligation applies to service contracts made on or after January 1, 2027: those without sufficient credit may have to guarantee up to 60 percent of minimum contract charges. Minimum bills specify what is owed; collateral provides a way to secure payment if the customer cannot meet that obligation.

The commission describes these provisions as measures designed to reduce the risk that infrastructure built primarily for large customers is recovered from everyone else. That wording matters: a safeguard assigns or reduces a risk, but its adoption is not evidence that every household’s future bill is protected from every source of higher costs.

Ohio’s contracts show why the details matter

A utility tariff sets out its rates, charges and service terms.

The Public Utilities Commission of Ohio adopted a data-center tariff settlement for AEP Ohio on July 9, 2025, and the tariff became effective July 23, 2025. PUCO said the utility faced load growth requiring significant transmission infrastructure and that the settlement was intended to safeguard other customers. This example belongs to that utility’s service territory, rather than establishing one rule for all Ohio customers.

New data centers and expansions must apply, with requests of at least 25,000 kilowatts also subject to a load-study fee and the described large-load process; the application requirements were checked on October 2, 2026. The initial electricity-service contract lasts the ramp-up period, no more than four years, plus eight years. If electric infrastructure is not ready by the estimated service date, the customer may petition the commission to adjust the contract term; otherwise, the term remains. The ramp allows demand to grow into the project, while the following commitment gives the utility a longer period of expected payments.

Ohio’s minimum monthly billing demand uses the greater of 85 percent of the highest established monthly billing demand in the previous 11 months or the contract-capacity minimum below.

The contract-capacity minimum cannot exceed 85 percent of total contract capacity. Calling this simply an obligation to buy 85 percent of the electricity promised would confuse a demand-charge formula with an energy purchase.

Before service begins, the buildout agreement requires repayment of 100 percent of buildout costs if the customer cancels the project, or delays it by more than 12 months, before the target energization date. That agreement’s obligation expires when the project is completed. The pre-service agreement addresses a different failure than a minimum bill: construction can cost money before the customer ever starts using electricity.

Customers that do not meet both the specified strong credit ratings and cash thresholds must provide a guarantee or collateral equal to 50 percent of minimum charges for the full contract term. To assess a special deal, its duration and exit terms deserve as much attention as the advertised electricity price.

State laws and wholesale markets add another layer

In competitive parts of Texas, retail providers sell electricity plans that include transmission and distribution rates fully regulated by the Public Utility Commission of Texas. Competition over the power purchase can coexist with regulation of the wires charge.

Texas Senate Bill 6 directs commission rules requiring covered large-load customers to contribute to recovery of the utility’s costs of connecting them to its system. Legislatures can therefore set the obligations that regulators must translate into utility rules.

The adopted large-load interconnection standards have an effective date of October 8, 2026. The adopted record requires large-load agreements to acknowledge minimum transmission-demand payments, while assigning the charge details to Project 58000. The interconnection rule’s adoption therefore does not establish that every separate cost-recovery proceeding is final.

The Federal Energy Regulatory Commission regulates interstate electricity transmission and wholesale electricity sales, while retail rates generally remain outside its jurisdiction. A state commission decides the regulated retail bill, but some costs feeding into that bill arise in regional markets.

Capacity markets are designed to support long-term electricity supply by signaling where and how much capacity is needed, with distribution utilities buying from generation owners. CRS explains that capacity clearing prices reflect the expected balance of future supply and demand. This creates another route for growing demand to affect costs, distinct from shifting a particular data center’s connection expenses onto neighbors.

Virginia’s 2026 Energy Plan sets a vision of affordable and reliable power for families and businesses and outlines pathways for the state’s energy future. An energy plan expresses a policy direction; the large-user rate decision supplies specific approved customer obligations.

Look for the approved terms and the case behind them

Start with the utility serving the site, then look for its approved large-user rate schedule and the regulator’s order adopting it. Check which customers qualify, the minimum payment calculation, how long the commitment lasts and what happens if the project is cancelled. A proposal may describe protections that the final order changes, so the approved version is the one that answers who must pay.

Virginia’s SCC Docket Search provides case documents, and its case-information page links to the official route for submitting public comments. Written comments must identify the applicable case number, and submitting them does not require oral testimony. Use the current case’s notice for participation instructions, rather than a hearing deadline from an older rate case.

For Virginia, the approved class takes effect January 1, 2027, a concrete point to watch. After implementation, the relevant test is whether the assigned charges recover the costs they were meant to cover, including the consequences of demand falling short. A data center’s large bill and a household’s rising bill can both be real; the rate order and its cost evidence explain how they are connected.