Opinion: Colorado should require data centers to pay their own way

Last Sunday, June 8, the Denver Post had an extensive article on the “Data Center Boom” in Colorado. Data centers can be small, in nondescript buildings, and support our use of internet and emails. Or they can be huge, like the ones supporting the use of artificial intelligence.

Per the article, Xcel currently estimates that the current requests for data centers will increase electric use by 1,923 megawatts over the next 6 years. That’s enough to power 2.1 million homes; it is an increase of 31% above our current power supply. The total requests by 2031, not all of which will come online, is estimated to be 6,181 megawatts, which would nearly double Xcel’s current electric power needs in Colorado.

Generating this massive increase in electricity requires either burning lots more fossil fuels, with attendant greenhouse gas emissions, or installing a huge number of photovoltaic panels, wind turbines, batteries for storage or building nuclear plants. Cooling the data centers’ processing electronics requires large amounts of water.

A very significant issue is who is going to pay for all of this. The problem is that there are inherent subsidies that exist in how electricity and, sometimes, water are priced. (The arguments for tax breaks are hard to justify, and appear to be losing, fortunately, because these data centers, once built, employ few people, only in double digits for a given center.)

Both the electricity and water systems that these data centers will tap into are generally delivered by regulated monopolies, whether private like Xcel or public like city governments. And under many current pricing schemes, they have built-in subsidies for growth in demand.

These subsidy-based pricing systems for the capital costs of new facilities work by allocating these capital costs among both existing and new customers, to be paid off over a fixed period. Once the facility is paid off, the capital investment is essentially free for all customers. Customers still have to pay operating and maintenance costs, but these are a small fraction of the total.

Unless there are adequate development impact fees, when large new customers hook up to the system, they can take advantage of existing facilities. If these facilities are already fully paid off, the capital cost to the new customer is zero. If partially paid off, the new customer only pays off their share of the unpaid portion. And if new facilities need to be built or acquired to meet the new customer’s needs, many times these new capital costs are allocated among all ratepayers. All these raise existing customers’ rates and thus subsidize the new customers’ consumption.

This creates a political incentive to minimize investments and resultant rate impacts on customers. But that can lead to increased blackouts, watering restrictions, etc.

The equitable solution is to allocate to the new customers the full cost of both meeting their needs and fully mitigating their environmental impacts. That way, existing customers are not harmed in terms of service levels, pricing or environmental quality. For data centers, that would almost certainly mean requiring them to build or pay for the necessary solar farms, wind turbines, and battery or other storage.

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For cooling water, it would mean requiring them to acquire water rights and delivery systems, or to pay to expand existing ones. Of course, water is a finite resource, and there simply may not be enough to go around and still maintain a livable environment. Then they would have to use some other cooling approach, or just not build.

Also, there is an infrequently mentioned issue: What good is all this AI really, especially given its environmental cost? In its current form, and what explains the need for these huge data centers, is that AI just reprocesses and compresses a lot of what is already written into a more consumable form. But this has many inherent questions about accuracy, completeness and innovation value, which seem to be getting lost.

In my opinion, this “growth pays its own way” approach should be applied to all public facilities (including water, power generation, transportation, etc.) for these and all other new and expanded developments. Cities, counties and states should set standards for what levels of service they intend to deliver, and these should then be maintained. This would avoid the built-in subsidy that comes with the standard pricing systems.

That way, decisions about whether and where and how much to grow are made on a more rational basis. Ultimately though, we need to face up to the limits to growth and recognize that quality is more important than quantity.

 

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