Howell Township Data Center Win: $1B Project Withdrawn After Community Meeting on Energy and Infrastructure Impacts

Rate Hikes and How We Pay for Data Centers

In Michigan, most utilities are regulated monopolies. This means that DTE is the sole utility for those in the eastern part of the state. In practice, DTE provides ratepayers with electricity, and when they do, they notify the Michigan Public Service Commission (MPSC) of how much it costs. The MPSC considers if the costs are appropriate given the service provided, and if they are, passes the bills to ratepayers. If DTE improves service or “does more,” they can ask the MPSC to approve a rate increase, which can result in higher bills. One of DTE’s most recent requested rate hikes in November would raise residential ratepayers’ electric bills by up to 9%. It’s important to note that DTE is looking to add more capacity to the grid, specifically to power data centers, yet it has outstanding reliability issues.

When ratepayers pay their electric bill, they cover two primary categories of costs (Figure 3). The first is operating costs, which cover things such as company salaries, utility truck maintenance, and software. When ratepayers pay for this on their bill, it is paid back at cost. Meaning, if DTE employs 100 employees, all ratepayers split the cost of those 100 employees, but nothing more. The second kind of cost, capital expenses, includes large-scale physical assets, such as grid infrastructure. When ratepayers pay for this on their bill, they pay for the cost of the infrastructure plus an additional return. To build or install large-scale capital expenditures, corporate-owned utilities like DTE get loans from banks and investors. No one loans money without interest, so it can be expected that ratepayers are asked to pay a little more on their bills to pay back the investors’ initial costs in funding the infrastructure. However, this model can incentivize utilities to favor capital-intensive infrastructure investments, since returns are earned on capital expenditures rather than operating costs. Thus, DTE and corporate utilities are strongly incentivized by data center proposals that allow them to justify infrastructure investments that will ultimately be passed on to residential ratepayers.

Figure 3. Graphic from NRDC detailing capital vs. operating expenses for utilities.