Ratepayer Protection Act Clears House, Formalizing Commercial Trends
Updated: 1 day ago
Energy Policy Perspectives Vol. 24
Last week, the House of Representatives passed the bipartisan Ratepayer Protection Act (HR 9340) by an overwhelming 417-to-3 vote. The bill has been sent to the Senate which will now consider reconciling its own shorter, more partisan bill (S 5028), to the House bill. The House bill requires large load customers of 100+ MW to pay the full cost of all infrastructure/power costs of their incremental electricity loads. HR 9340 also orders state utility regulatory commissions to begin rulemakings to implement the full cost recovery of new large loads concept within a year of the full passage of the bill and provide a ruling within the following year. The Senate bill is very similar and should be fairly easy to reconcile with HR 9340. However, fast track passage of the bill was blocked on the 17th by Senator Martin Heinrich (D-NM). The bill’s vague “large load” language could have implications beyond AI data centers and could affect existing state large load tariffs (such as set in Oregon earlier this year). Other pending bills seek to take the Ratepayer Protection Act even further into electricity policy and data center development transparency areas (HBs 10139, 6918, 6529, 6177, 9777, 6176, 8241, 9419, 6075, 5600, 7977, 5600, 5927, 8241 and SBs 3682, 3839, 5199, 2388, 3926, 4559, 350).
The legislation follows the Ratepayer Protection Pledge, a voluntary agreement originally signed on March 5th by seven leading AI/tech companies and expanded on July 23rd to include 250+ utilities/cooperatives, 44 data center developers and 23 state governors. The Pledge aimed to assure the public about data center electricity rates and prevent the expansion of AI data centers from increasing residential and small commercial electricity bills. The Pledge assured states and retail electricity customers that participating tech companies would cover the full cost of the incremental generation and grid infrastructure for their data centers, even if ultimately unused, and to negotiate separate rate structures rather than utilities socializing a portion of these costs across small customers. Still, it is not always easy to directly identify exactly who benefits from all new infrastructure investments.
The Ratepayer Protection Act is somewhat irrelevant at this point, in our view. The terms of HR 9340/SB 5028 have largely become industry standard in the negotiation of Electricity Supply Agreements (ESAs) between utilities, power producers, and large electricity load entities. However, the Ratepayer Protection Act does codify the nature of new data center and other large customer load ratemaking and broadens the potential applicability of the intent of the legislation. The passage of the legislation could also light a fire under some state regulators that have not yet completed rulemakings on new large customer tariffs based on the codified deadlines contained in both bills. Ultimately, we do not expect the legislation to materially alter the trajectory of how electricity providers contract with new large load customers. However, the passage of the legislation and the impetus it provides for more universal state momentum on large load rulemakings/tariffs may help to speed new ESAs, accelerate utility and IPP growth further, and stem the significant public backlash related to the construction of data centers.
Ultimately, the legislation may also speed the resolution of the multi-decade delays in modernizing and expanding U.S. energy infrastructure, often delayed by state regulators to limit annual cost increases to retail consumers that is beginning to catch up with U.S. electricity infrastructure adequacy. We believe that the electricity rate affordability issue will remain beyond the near-term data center/AI compute expansion as the U.S. electrification trend and infrastructure modernization and expansion continues for the next few decades.
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