New Berkeley Lab technical brief describes pricing and service agreements for large-load customers

We are pleased to announce the release of a new Berkeley Lab technical brief, Electricity Rate Designs for Large Loads: Evolving Practices and Opportunities, describing the design of retail electricity pricing and service agreements for large-load customers, such as data centers. U.S. electricity demand is projected to grow significantly in the next decade, largely driven by data center expansion and artificial intelligence applications, but also new domestic manufacturing and electrification in other sectors. While data centers play an important role in advancing technology innovation and economic growth in the United States, data center energy needs present challenges and opportunities for electricity supply and infrastructure.

Berkeley Lab’s new technical brief, Electricity Rate Designs for Large Loads: Evolving Practices and Opportunities, serves as a foundation for the discussion of issues and sharing of perspectives among utilities, regulators, large-load customers, and other stakeholders. As utilities and regulators explore rate structures to address growing data center electricity demand, several issues have emerged:

• Fair allocation of electricity system costs to large-load customers without unfair shifting of costs to other customers
• Appropriate mitigation of the financial risks associated with stranded assets from underutilized utility system investments
• Mitigation of operational and resource adequacy risks if electricity demand exceeds supply
• Appropriate risk-sharing in commercializing newer electricity technologies such as advanced geothermal, small modular reactors, and long duration energy storage
• Accommodating the diverse needs of large-load customers, such as having the option to match electricity consumption with output from carbon-free resources or using onsite generation to provide system capacity.

The brief identifies key design elements that aim to address these issues and uses leading examples of pending and approved rate structures, agreements, and special contracts to ground the elements in practice (Figure 1).

_{Figure 1. Large Load Tariff Elements}

Image

• Eligibility and applicability: Eligibility terms define which customers qualify for electricity service under the utility tariff.
• Contract capacity and energy: The contract size defines the energy and/or capacity customers are obligated to buy from the utility, as well as opportunities to adjust those quantities over time under certain conditions.
• Contract duration and exit fee: The contract term determines its duration and the customer’s ability to ease into and exit the contract to manage utility resource adequacy and cost recovery risks.
• Energy source: The type of generation source that the utility uses to supply energy to large-load customers.
• Other elements: Utility tariffs may include additional elements intended to meet specific objectives or manage specific risks, for example marginal pricing or cost sharing mechanisms can limit cross-subsidization. Also, large-load customers may have behind-the-meter generation that can serve as flexible load to mitigate system peak demand and integrate variable renewable energy resources.

Regulators play an important role in approving tariffs that balance multiple perspectives and objectives, including helping large-load customers secure reliable power, mitigate financial or reliability risks for utilities, and support clean energy deployment without unduly burdening other ratepayers. As states, utilities and data center customers explore the appropriate path forward to meet data center electricity demand, the U.S. Department of Energy and the National Labs are well positioned to research emerging grid-edge issues, opportunities for data center efficiency and provide technical assistance to public utilities commissions, state energy offices and utilities and grid operators.

We thank the U.S. Department of Energy’s Office of Policy for their support of this work.