Data centers have come out of seemingly nowhere to potentially reconfigure the landscape of electricity generation in Colorado and many other states. In some places, they’re talking about keeping coal plants running to keep up with the growth in demand.
The most telling statistic arrived last October when Xcel Energy filed a plan with state regulators that predicted a rapid rise in new electrical demand after two decades of modest growth.
Fleets of new electric vehicles? Many thousands of new air-source heat pumps? Yes, they figure in. Data centers, though, constitute 72% of the new peak demand projected by Colorado’s largest electrical utility. The company wants to spend $22 billion in Colorado over the next five years to help prepare.
Colorado already has about 60 data centers between Fountain and Longmont, according to Baxtel, an industry tracking website. But Pueblo has none. Colorado lawmakers would like that to change.
A bill at the Colorado legislature this year proposes to add more carrots. House Bill 1177 would allow Colorado’s two investor-owned utilities — Black Hills Energy, the electrical provider for Pueblo, and Xcel Energy — to offer reduced electrical rates for up to 25 years and for demands of up to 40 megawatts.
The new bill also allows for reduced rates for consumers of larger volumes of electricity, such as needed for giant warehouse-sized data centers, but only after scrutiny by the state’s Public Utilities Commission
Xcel Energy, in a filing with the PUC in late February, said it has decided to stop using lower-cost electricity, called economic development rates, to elicit new business. Obviously, it has plenty of new demand to meet. After all, Vail Resorts doesn’t discount lift-ticket prices on powder days.
An existing law passed in 2018, when few of us were thinking about data centers, allows utilities to offer 10 years of reduced rates for loads of up to 20 megawatts. It has worked for Xcel, but witnesses told a legislative committee that it’s not enough for the Pueblo area.
This bill likely will pass. It has two Democratic sponsors from Pueblo and a Republican from Trinidad. It’s being pitched as a vehicle for economic development in a place that lags the state’s overall prosperity. The administration of Gov. Jared Polis testified in support on Feb. 26 at the bill’s first committee hearing.
Seeing the writing on the wall, representatives of several environmental groups have asked for amendments. They want assurances that lower-cost electricity isn’t subsidized by homeowners and other businesses. They worry about whether Colorado can meet its greenhouse gas reduction goals.
“It’s really become kind of the new boogeyman in the energy world,” said State Rep. Alex Valdez, a Democrat from Denver, at the legislative hearing.
Debate about this bill will be a warm-up exercise for a much bigger, broader discussion about data centers in Colorado. They’re coming and in a variety of configurations. Colorado needs to figure out the best public policy because they can pose enormous demands on both electricity and water.
Colorado’s decarbonization road was already getting bumpy. Colorado Springs Utilities and Westminster-based Tri-State Generation and Transmission Association want relaxed decarbonization goals. Kinked supply chains and other issues have elevated the prices of renewables and also new natural gas projects. Xcel has also reported delays and rising prices.
The pathway to achieving 80% reduction in greenhouse gas emissions by 2030 did not contemplate surging demand from date centers. Basalt- and Boulder-based energy think tank RMI points out that from 2014 to 2023 retail sales of electricity in the United States rose less than 3% altogether even as the nation’s population grew 5% and real GDP jumped 24%. Finally, the gospel of energy efficiency preached by RMI co-founder Amory Lovins since the 1970s is having an effect, but that progress could be thwarted if demand spikes for data centers.
Other states have been struggling to balance economic development and environmental goals. The tax base of data centers is appealing. The jobs? A study in Virginia found that a 250,000-square-foot warehouse of data centers would yield 150 permanent jobs. Those jobs paid typically 150% of the area median income.
Energy demand has caused some utilities in Virginia and Georgia to talk about keeping coal plants open beyond scheduled retirement. Amazon wanted to add 250 diesel generators at a proposed facility in Minnesota but was denied.
How much of this projected demand will materialize? Duane Highley, CEO of Tri-State Generation and Transmission, told his directors last week he’s suspicious of projections of tripled demand from large-load data center projects. He suspects developers have been shopping for rates, causing redundancy.
Brighton-based United Power, Colorado’s third largest electrical distribution utility, puts the onus on developers. Mark Gabriel, the CEO, says eight potential data centers have approached United. He says their projected demand may materialize – or maybe it won’t. Either way, money is not the issue for data centers.
“The total market capitalization of the top 100 utilities in America is roughly $2.8 trillion,” he points out. “The market capitalization of the ‘magnificent seven’ – Google, Meta and the others – is $13.4 trillion. Money is not the issue. These guys have it. The issue is can they get their data centers in the right locations?”
Gabriel said Xcel and Black Hills Energy, Colorado’s two investor-owned electrical utilities, spread the cost of their infrastructure across all their customers. As an electrical cooperative, he said, United will not. “The individual companies pay the costs up front. And there is a big difference.”
Advocates of data centers say they can actually benefit all electrical consumers by driving enormous growth in electrical generating capacity and hence lowering costs. I’m skeptical. But Colorado Gov. Jared Polis, who has done a better job of making money than I, believes this can be done.
In October, Polis sent a letter to several department heads calling for an all-of-government approach. “Growing load (demand) through electrification will spread these fixed costs over more users, exerting downward pressure on rates,” he wrote. He asked the Public Utilities Commission and other state agencies to compile reports about how to grow the economy while protecting ratepayers and meeting environmental goals. Reports are due beginning in June. The underlying assumption is that planning can avoid deep potholes.
It would be wonderful if we can have our cake and eat it too. If Polis can pull this off, it will embellish his credentials for a run at the Democratic nomination for president. And, as the last presidential election showed, it’s useful to have big tech on your side.
Better yet for Colorado would be if new data centers were all located at the site of former coal units in Pueblo and other places in Colorado that could use an economic boost.
I’m dubious about this particular legislation. It adds more carrots, but they were there before. Pueblo has no data centers and Colorado Springs has 11. What else is going on?
Colorado has done some amazing work in this energy transition, compiling an amazing first-in-country list of achievements in policy and guardrails. Might legislators and the Polis team now figure out a way to keep electricity prices low, build the economy even more, all while meeting environmental goals?
We need a deep think. This bill is not that. Alas, several key state legislators who crafted Colorado’s impressive energy pivot in recent years have left the Capitol. It’s not clear who will take their place.
Allen Best chronicles Colorado’s energy and water transitions at BigPivots.com.
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