Who should pay massive power costs in AI data centre frenzy

Who pays to expand a city's energy infrastructure when a data centre moves in and gets increasingly hungrier for power? An energy company in the US state of Nevada is trying to answer this question, pushing back against a data centre developer's demands in court.

The legal battle in Nevada could help determine who should pay for the massive energy infrastructure needed to power the rapidly expanding data centre industry, as the state’s largest utility pushes back against a developer seeking to connect two power-hungry campuses to the grid, American media reports.

NV Energy, which supplies electricity to about 90% of Nevada, has sued data centre developer Tract, accusing the company of attempting to shift the cost of major grid upgrades onto ordinary electricity customers.

Tract’s two planned data centre campuses near Reno are expected to require more than 2 gigawatts of electricity combined — nearly one-third of NV Energy’s current generating capacity. The utility has warned that it could be forced to raise electricity rates if the developer does not cover a greater share of the infrastructure costs.

The dispute is being closely watched because it is believed to be the first lawsuit of its kind between a major US utility and a data centre developer. Its outcome could establish a precedent for how the enormous infrastructure costs associated with the AI-driven data centre boom are divided between developers, utilities and consumers.

“Projects that create new infrastructure or energy costs must pay those costs and cannot shift them onto Nevada families, small businesses, or existing customers,” NV Energy spokesperson Katie Jo Collier told CBS News. “Residential and small business customers cannot be left on the hook for these investments now or in the future.”

The disagreement stems from agreements between NV Energy and Reno Power, Tract’s local contracting entity, setting out the terms for supplying electricity to the planned facilities.

Tract has argued that NV Energy is refusing to provide electricity it had previously committed to deliver while simultaneously demanding that the developer begin funding around $1 billion in grid upgrades.

In June, Tract sought private arbitration to resolve the dispute. Several weeks later, however, NV Energy filed a lawsuit seeking to prevent the matter from being handled through arbitration.

Nevada regulations require large electricity users to go through the state’s regulatory commission, which determines their power and infrastructure requirements. The system is based on the principle that major new customers should finance the infrastructure needed to accommodate their additional demand rather than shifting those costs to existing ratepayers.

Resolving the dispute through a public regulatory process would also give consumer advocates, community groups and other stakeholders an opportunity to participate.

The case could therefore have implications well beyond Nevada and the United States, as utilities across the world grapple with soaring electricity demand from data centres powering artificial intelligence and other high-performance computing applications.

By Nazrin Sadigova