Xcel Energy on Thursday introduced a special tariff for new, energy-hungry data center customers aimed at ensuring that facilities pay their way and that other utility customers are not hit by the cost.
The Colorado Public Utilities Commission ordered Xcel Energy, the state’s largest electric provider with 1.6 million customers, to establish a tariff, concerned that data center demand could drive up rates. The PUC must approve the proposed rate.
A subsidiary of Xcel Energy – Public Service Company of Colorado – projects these so-called heavy loads will make up two-thirds of its new electricity demand and has said it will need 950 megawatts of new generation to serve these customers in the next five years.
The construction of the information center, driven by the growth of artificial intelligence, is increasing. Globally, data center capital expenditures will reach $770 billion by 2025, surpassing investments in oil and gas and solar, according to industry analyst Rystad Energy.
In the United States, data centers set a record for electricity demand in 2025 as data center employment rates fell to 1.4%, according to real estate services company CBRE.
“Demand is outstripping supply,” said Pat Lynch, CBRE’s managing director for data centers.
Under the old rate structure, the costs of new power plants and transmission lines as well as the profits on those investments are covered by consumer bills. Consumer advocates, lawmakers and government regulators have expressed concern about the potential impact on residential and small business customers.
A bill is pending in the state legislature to address some of these issues.
The need for data center power is not just a problem in Colorado
Colorado isn’t alone in trying to cope with the explosion of data center construction. By 2025, state regulators have approved 29 bulk load tariffs and 77 are pending in 36 states, according to the Smart Electric Power Alliance tariffdatabase.
Consumer advocates say Xcel Energy’s proposed fee is a step in the right direction.
“What the company has put forward is a plan that responds to the views of the consumer representative and is a good plan to ensure that other consumer groups are not hurt by the addition of these new burdens,” said Joseph Pereira, director of the Colorado Office of the Utility Consumer Advocate.
On April 1, CoPIRG, a consumer advocacy group, and AARP Colorado, which represents people over 55, launched a campaign urging the PUC to adopt consumer protections in data center development.
“Xcel’s proposal looks like a good first step to ensure that these data center costs don’t fall on customers,” said Danny Katz, CoPIRG’s executive director. “Now it’s time for the PUC to review Xcel’s numbers.”
Xcel’s solutions address a wide range of data center challenges, from virtualization projects to energy efficiency issues.
“It’s the nature of the new bulk load rates,” said Jack Ihle, Xcel Energy’s vice president for data centers and bulk loads. “This is specifically for them and is designed to protect other customers.”
Xcel Energy defines large loads as any customer requiring 50 megawatts of generating capacity.
In its last power plant project, Xcel Energy sought PUC approval to add 14,000 megawatts of new power plants at a cost of $22 billion. Concerned that the company might overbuild because data center demand is uncertain, the commission approved only 6,000 MW of new power.
Under the tariff, the new capacity of the data center can only be calculated from the load of the application and the services provided after the center has signed the connection and energy service agreements. The manufacturer must also demonstrate that it controls the intended area.
There is a deposit of $120,000 and the need to pay for freight and transfer fees brings the initial investment to $600,000.
The up-front costs, and the need to sign contracts, are meant to shake up speculative projects as data center developers buy faster connections to the grid.
For example, during the six months in 2024 and 2025 seven potential data customers representing 4,000 MW of load pulled service requests from Xcel Energy and more than a dozen new opportunities for 3,500 MW of service requests were submitted, according to the PUC filing.
The data center must sign a 15-year contract, with the agency responsible for paying 80% of all energy on the contract and there is a security deposit equal to six months of operation. There will also be a minimum monthly bill.
If the data center wants to exit the contract before the 15-year period, it must pay a fee equal to the sum of all the minimum monthly bills remaining in the contract.
Data centers must pay for the new generation they need and for transmission lines to connect to the grid. The bill provides expedited approval from the PUC to bring in new generation.
For any system upgrade that may be performed for more than one customer or for the general customer benefit, the data center will be charged a monthly fee.
The charge also includes a clean component of the change aimed at data centers that use clean and emerging technologies such as thermal and thermal energy storage and longevity.
“So, at the end of the day, most customers are paying for the generation that we’re going to get to serve them, and they’re paying for all the transmission that we’re doing to help them,” Ihle said.
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