Even though there’s a proceeding before the Colorado Public Utilities Commission to establish a large-load tariff  that aims to protect smaller customers from rate increases, a staff attorney at Sierra Club argues that Xcel Energy has plans to sign secret contracts with data centers now in the interconnection queue in the state, making the proceeding irrelevant to these customers.

​The total demand from large loads such as data centers exceeds Xcel’s current demand and would double the utility’s peak demand. The utility is using a rarely used Colorado statute that allows for contracts between the utility and a customer, with no input from other stakeholders, Sierra Club staff attorney Matthew Gerhart said.

Gerhart is also concerned that Xcel Energy isn’t including demand response in the tariff, but under a separate program.

“The whole point of this proceeding was to go through a public process to decide on the rates that large customers like data centers should pay,” Gerhart said. “Xcel is saying, ‘For the people who are in the queue now, we're not even going to use that process at all.’”

Xcel Energy denies Sierra Club’s claims

“Claims that Xcel Energy is already adding new large customers to our forecasts are inaccurate,” Lisa Andersen, spokesperson at Xcel Energy, told Microgrid Knowledge. “At this time, we have not executed the combination of agreements required by the PUC for new large load customers to receive service, and no new large load customers have been included in our load forecast.”

Xcel is still evaluating large customers, including pursuing technical and interconnection studies that can take several months or longer to complete, Andersen said. Xcel is committed to working openly with regulators and stakeholders as the large-load proposal moves forward, she said.

Contracts hide information needed by microgrid and DER developers

Sierra Club’s Gerhart is not alone in his concerns. The “secret” contracts also hide information–such as the location of substations that are grid constrained–that stakeholders such as microgrid and distributed energy resources (DER) providers could use to propose flexibility options, said Malaquias Encarnacion, managing director at Carina Energy, which provides energy storage.

“Sealing that data does not just raise fairness questions for ratepayers. It removes visibility into where the grid needs flexible capacity most,” Encarnacion said.

The Sierra Club is also concerned about the private contracts blocking the organization from obtaining information about the type of generating resources Xcel proposes for meeting data center needs and their environmental effects, especially if they are fossil-fuel based.

In addition, instead of rolling these contracts into demand response programs under the large load tariff, Xcel wants to separate demand response and offer it to these large loads under a separate program called Interruptible Service Option Credit. Gerhart said. That option, developed many years ago, doesn’t meet the specific needs of data centers, he added.

Xcel Energy’s Andersen responded, “Demand response remains a top priority for the company, and we look forward to reviewing and responding to the testimony from the Sierra Club.”

How microgrids help relieve grid stress

Under demand response programs, customers receive incentives for cutting their usage during peak demand periods, which helps utilities avoid investing in new power plants to meet demand.

Microgrids can help relieve some of the stress on the grid caused by data center development, especially in areas like northern Virginia, where data centers are clustered. They can island during peak demand periods, and deploying them will make it easier to build new data centers in areas where the grid is constrained.

Demand response programs help reduce grid stress and reap savings for data centers. For example, a data center in Calgary has earned more than $400,000 since 2014 by participating in a demand response program. The facility lowered its grid energy consumption and utilized on-site systems, helping the grid during peak demand while maintaining uptime.

"Demand response is the opportunity and the microgrid is what makes it credible,” said Alex Marshall, group business development and marketing director at Clarke Energy.

A better policy strategy to lower peak demand

​There’s a better way to address demand response and allow microgrids and DERs to lower peak demand and reap electricity savings, said Ildi Telegrafi, policy fellow at Alliance for Innovation and Infrastructure.

​“A policy strategy that is more inclusive of data centers and microgrids would strive to flatten the peak by increasing demand response funding while setting limits for data center peak operations,” he said. This would slow the need for new infrastructure to meet data center peak demand periods and maintain peak demand [support that matches the size of the system, he added.

It would also make sense for data center developers to have the option of funding demand response or virtual power plant programs with other customers to help lower overall load, Gerhart said.  But so far that may not be an option in Colorado, even though the company allowed for that type of initiative in Minnesota, where Xcel and Google will together deploy 1,900 MW of new clean energy for the grid.

The benefit of a battery at the point of interconnection

“When Xcel proposes carving demand response out of the large-load tariff, the practical effect is to separate the grid's need for flexibility from the only piece of infrastructure that can actually deliver it without touching the compute load: a battery sited at the point of interconnection,” said Encarnacion.

States across the country are trying to stem the electricity price increases associated with meeting AI data center electricity demand. For example, Oregon recently passed the Power Act, which requires data center developers to pay for their share of electricity costs.

Xcel’s proposed large load tariff is similar. It would allow Xcel to serve large new customers but ensure data centers and other large loads pay their own way.

For these large loads, utilities shouldn’t frame demand response as a favor data centers owe the grid. The utility and the large load should see it as a co-investment, Encarnacion said.

“Frame it as a co-investment, where the battery pays for itself through avoided demand charges and revenue stacking, and grid flexibility is one more return,” he said.