Future data centers are driving up forecasts for energy demand. States want proof they’ll get built

As utilities across the United States forecast a dramatic surge in electricity demand to power data centers supporting artificial intelligence, concerns are mounting over the accuracy of these projections and who will ultimately bear the costs.

Utilities are projecting they’ll need two to three times more electricity within just a few years, triggering alarm among lawmakers, policymakers, and regulators. The central concern is whether these forecasts rely on speculative data center projects that may never materialize, potentially leaving regular consumers paying billions for unnecessary power plants and grid infrastructure.

“There’s speculation in there,” warns Joe Bowring, head of Monitoring Analytics, the independent market watchdog for the mid-Atlantic grid. “Nobody has been looking carefully enough at the forecast to know what’s speculative, what’s double-counting, what’s real, what’s not.”

The scrutiny comes amid broader concerns about a potential AI investment bubble that has inflated tech stock prices. Consumer advocates have already found that in some regions, including the mid-Atlantic electricity grid encompassing 13 states and Washington, D.C., ratepayers are subsidizing power supply costs for both existing and prospective data centers.

The uncertainty around these forecasts stems from several factors. Developers may seek grid connections without firm plans or sufficient financing to complete projects. Additionally, data center developers often submit connection requests in multiple utility territories simultaneously without disclosing these duplicate applications, according to findings from PJM Interconnection, which operates the mid-Atlantic grid, and Texas lawmakers.

“For competitive reasons, developers won’t tell utilities if or where they’ve submitted other requests for electricity,” PJM representatives noted. This practice can artificially inflate energy forecasts across multiple utilities.

The issue gained federal attention in September when Federal Energy Regulatory Commission member David Rosner requested information from the nation’s grid operators on their methods for verifying project viability and electricity needs. “Better data, better decision-making, better and faster decisions mean we can get all these projects, all this infrastructure built,” Rosner said.

Industry stakeholders are acknowledging the need for more rigorous verification. The Data Center Coalition, representing tech giants like Google and Meta, has urged regulators to request more detailed information from utilities and develop best practices for determining commercial viability of data center projects.

“Wherever we go, the question is, ‘Is the energy growth real? How can we be so sure?'” said Aaron Tinjum, the coalition’s vice president of energy. “We really view commercial readiness verification as one of those important kind of low-hanging opportunities for us to be adopting at this moment.”

Igal Feibush, CEO of Pennsylvania Data Center Partners, describes utilities as being in a “fire drill” as they attempt to vet numerous data center projects simultaneously. He predicts most projects will ultimately fall through because many backers lack experience with the complex requirements of data center development.

States are also taking action to improve forecast accuracy. In Texas, which is attracting significant data center investment, lawmakers were startled when the Electric Reliability Council of Texas projected peak demand could nearly double by 2030. Still haunted by the deadly 2021 winter storm blackout, they discovered state utility regulators lacked tools to verify these forecasts.

Texas state Senator Phil King noted that the grid operator, utility regulators, and utilities themselves couldn’t determine whether the power requests “are real or just speculative or somewhere in between.” In response, Texas passed legislation requiring data center developers to disclose multiple electricity requests within the state and demonstrate substantial financial commitment to their projects.

Meanwhile, Pennsylvania is seeing similar challenges. PPL Electric Utilities, serving 1.5 million customers across central and eastern Pennsylvania, projects data centers will more than triple its peak electricity demand by 2030.

Vincent Sorgi, president and CEO of PPL Corp., recently assured analysts that these data center projects “are real, they are coming fast and furious” and that the “near-term risk of overbuilding generation simply does not exist.” The company maintains that projects in their forecast are backed by contracts with financial commitments often reaching tens of millions of dollars.

Nevertheless, the projections prompted Pennsylvania state Representative Danilo Burgos to introduce legislation enhancing the authority of state utility regulators to scrutinize utility demand forecasts. His Philadelphia district residents recently experienced electricity bill increases attributed to rising wholesale electricity costs driven primarily by data center demand.

“Once they make their buck, whatever company,” Burgos said, “you don’t see no empathy towards the ratepayers.”

As this complex situation unfolds, the question remains whether the unprecedented electricity demand will materialize as forecast, or if consumers will end up paying for infrastructure built on speculative projections.