RATEPAYERS · COST ALLOCATION & FAIRNESS
Who Should Pay for the Grid Data Centers Need?
By David Swank, CEO, i3 Power & Energy
The question of who pays for the grid buildout that data center growth requires has moved from technical debate to political fight. Residential ratepayers see bills climbing and infrastructure that seems to serve someone else. Developers see projects delayed by cost allocation disputes that were not contemplated when they signed their offtake agreements. Utilities sit in the middle, trying to satisfy regulators, serve existing customers, and connect load that arrives faster than the traditional cost-allocation framework was designed to handle. Every party has a legitimate concern. The current structure treats them as adversaries.
I want to be direct about something before going further. The concerns of residential ratepayers who are watching their bills rise are not populism. They are the correct signal that the current system is not distributing the cost of new infrastructure in a way that reflects who is driving the growth. Any honest response to the data center power question has to start from that acknowledgment. Building the future grid on the backs of existing ratepayers is neither fair nor politically sustainable.
What the Current System Actually Does
Cost-of-service regulation was designed to spread infrastructure costs across a broad ratepayer base whose growth was gradual and reasonably predictable. It worked well for decades because the assumptions underneath it were largely correct. When new load is concentrated, sudden, and driven by a small number of very large customers, those assumptions no longer hold. The result is a system in which infrastructure that primarily serves new load ends up allocated in ways that require existing ratepayers to absorb costs they did
not cause.
This is not the fault of any single party. It is the predictable outcome of a framework that was not designed for the situation it now finds itself in. Fixing it by fighting over which side loses the least is not going to produce a durable answer.
The Developer Perspective Also Deserves a Fair Hearing
Not every data center developer is a hyperscaler with pricing power and standing capital reserves. Many of the developers navigating the current environment face genuine uncertainty about cost allocation until deep into the development timeline. That uncertainty is expensive. It shows up in higher risk premiums, longer timelines, and canceled projects that might have been productive if the cost picture had been clearer earlier. A framework that makes cost allocation predictable would produce better outcomes for developers too, even developers who ultimately absorb higher shares of the cost.
“The right question is not which party pays. It is how to design projects that create value for every party, so that the payment question stops being zero-sum.”
The Integrated Alternative
An integrated project changes the terms of the debate. When a data center brings its own generation, its own storage, and its own operational flexibility, the amount of new grid infrastructure it requires drops substantially. It draws against headroom rather than adding to peak. It provides grid services rather than only consuming them. It becomes, from the utility's perspective, a very different kind of customer, one whose presence lowers rather than raises the cost pressure on other ratepayers.
This is what recent analysis, including the Brattle Group's work on grid utilization, has shown quantitatively. Intelligent integration of new load can produce meaningful downward pressure on rates rather than the upward pressure that concentrated, grid-dependent load produces. The economics are already there. What is missing is the coordination model that gets the parties into the room together early enough to design projects this way.
Why Coordination Sidesteps the Fight
When developer, utility, and community stakeholders plan together from the earliest phase, the cost allocation question becomes something the parties can shape rather than inherit. Generation choices reflect utility planning. Flexibility commitments reflect grid needs. Community benefit terms reflect real local input. The project that results does not create the same cost pressure that a grid-dependent project would, and the cost allocation conversation becomes much smaller because the underlying costs are smaller.
None of this eliminates cost allocation as an issue. It just makes it a solvable one. The current fight over who pays is heated because the current structure forces the parties to fight. A different structure, one that brings the parties together to design projects whose value is shared, produces cost outcomes that no single stakeholder has to lose in order for another to win.
A Fair Answer, Not a Neutral One
The ratepayer question is not going away, and it should not. The right response is to take it seriously enough to design around it, not defensively enough to argue past it. Coordination is how that gets done. It is what i3 was built to convene. And it is the reason the cost allocation debate, which looks intractable inside the current framework, becomes much smaller inside a better one.
