State utility regulators rejected a proposal that would have required ratepayers to share the cost of new power plants built for data centers. 

Data centers in We Energies’ coverage area will instead be expected to pay the whole cost of new “bespoke” power generation built to serve the energy-guzzling facilities, the Public Service Commission decided today.

Members of the PSC also modified the utility’s proposed contract, known as a tariff, to offset transmission costs from being borne by other ratepayers and expanded the length of the proposed contract and the scope of customers to which it would apply. 

PSC commissioners at a hearing today said having We Energies’ other ratepayers pick up part of the tab for new “capacity only” generation could create undue harm to existing customers. 

“This opened the door to a lot of risk and uncertainty that would impact non-VLC customers,” said Commissioner Summer Strand, using the abbreviation for the “Very Large Customers” the utility will serve under the tariff. 

The tariff will dictate how Microsoft’s Mount Pleasant data center campus and the Vantage data center facility in Port Washington will pay for its power needs and the infrastructure to generate and transmit it. 

Microsoft and We Energies praised the ruling. 

Brendan Conway, media relations director for We Energies’ parent WEC Energy Group, said the ruling “underscores the importance of our plan to ensure data centers pay their full share for the power we use in our state.”

A statement from Microsoft Senior Director of Energy Markets Jeff Riles said the company “welcomes” the Commission’s approval of the tariff.

“Microsoft has always been committed to paying the costs our operations require, and these tariffs give us a clear path to continue investing in the state while living out that commitment to protect other ratepayers,” Riles said. 

Environmental and consumer advocacy groups also released statements supporting the PSC’s ruling.

Clean Wisconsin attorney Brett Korte called the decision “an important and positive moment for the regulation of hyperscale data centers,” adding “families in WEPCO’s territory will have lower bills and cleaner air as a result.”

“How this gets implemented in future rate cases remains to be seen, but customers’ interests are in a better place after the PSC supported critical changes to the utility’s proposal that CUB and other groups recommended,” Citizens Utility Board Executive Director Tom Content said in a statement.

We Energies proposed two avenues for data centers or VLCs to pay for new power generation.

Under one option, known as “full-benefits,” data centers would pay for 100% of the cost of new generation and receive any benefits from that new generation, including revenue from excess power sales and renewable energy credits.

Under “capacity-only,” data centers would pay 75% of infrastructure costs for construction, with other customers picking up the remaining 25% of construction costs and 100% of fuel costs for what were expected to be natural gas plants.

Commissioner Marcus Hawkins said the “capacity-only” option would frontload costs onto customers.

“We cannot ignore the stranded asset risk this also introduces if non-participating customers are on the hook for 25% of something they may not need,” he added. 

Commissioners also approved a modification PSC staff proposed to how data centers would be billed for transmission costs.

Under a provision known as a minimum billing demand charge, data centers will be required to pay transmission fees equal to their projected power use or their actual use, whichever is higher. 

The minimum charge is meant to offset the costs other ratepayers could bear on the upfront costs of already under-construction transmission infrastructure being built for data centers. 

Under federal law, utilities won’t actually be able to bill data centers for transmission costs until they start drawing power from the grid, meaning ratepayers may incur some of those upfront costs, but the minimum charge means the cost of new transmission will be recouped from data centers faster.

It also insulates ratepayers from paying more for transmission if data centers fail to meet their projected load needs.

Commissioners rejected a more aggressive proposal that would have had data centers immediately pay the equivalent of their fully online power costs. They raised concern it could tread on federal authority.  

Hawkins called the charge a “very minimal step in the right direction,” noting it would not help customers of utilities outside of We Energies’ coverage area, who share transmission costs. 

He criticized We Energies’ resistance to the minimum charge, which it had argued in testimony was “not founded in fact or precedent.”

“Choosing to not try and directly argue for the status quo is really disingenuous” given the unprecedented nature of the tariff, Hawkins said.

We Energies has said it will work with transmission utility American Transmission Company and the Federal Energy Regulatory Commission, which regulates transmission costs, to bill data centers for transmission costs once new power lines go into operation.

Commissioner Kristy Nieto said changes to federal rules would be “great” and the tariff could be amended in the future, “but in the meantime we need to make sure existing customers aren’t paying for data center transmission.”

Commissioners approved a minimum contract length of 15 years between data centers and utilities, up from the 10 years proposed by the utility, and lowered the threshold for which the VLC tariff would apply from facilities with 500 megawatts of power demand to 100 megawatts.

They also allowed data centers to subscribe to power sources outside of Wisconsin, raised the credit requirements for data center developers to be exempted from posting collateral for new generation, and said ratepayers would pay a lower return on equity for new generation built for data centers if that generation shifted away from serving the tech facilities. 

The PSC will next issue a written ruling formalizing its decisions.