Electricity Pricing in the Age of Data Centers

Wisconsin households are facing increasing electricity costs, a trend exacerbated by the significant and continuous power demands of hyperscale data centers being proposed statewide. These data centers, some consuming as much electricity as a mid-sized city, necessitate substantial new infrastructure investments, including generation capacity, transmission lines, and dedicated substations. The article, authored by William Holahan, an emeritus economics professor at UW-Milwaukee, argues that traditional utility pricing structures are ill-equipped to handle the unique demands of these facilities. He advocates for a "marginal cost pricing" approach, wherein data centers are placed in their own tariff class. This would ensure they pay not only for the electricity consumed but also for the extraordinary fixed and variable costs of the dedicated infrastructure built to serve them, thereby preventing these costs from being subsidized by general ratepayers. Furthermore, Holahan highlights the risk of stranded assets if a data center shuts down prematurely, leaving utilities and the public to absorb the costs of dedicated infrastructure. He proposes that data center corporate owners should bear the financial risk for these investments through binding commitments and other financial guarantees, which should be secured before any infrastructure construction begins. As Wisconsin enters a political season, the article urges voters, reporters, and candidates to press for clear stances on how the Public Service Commission (PSC) will evaluate utility rate cases, specifically regarding whether large industrial customers like data centers will be required to cover the full cost of their infrastructure needs, and how ordinary ratepayers will be protected from subsidizing these developments.