‘Free Enterprise Zone’ for Electricity?

“Under the proposed deregulation plan, data centers would not need to worry about grid reliability to keep their business running. The two parties can make their own reliability arrangements, involving engineering (underground connections, backup generation, storage or through contract provisions).”

Data center madness due to artificial intelligence (AI) struck the U.S. Last week. President Donald Trump kicked it off with a strange White House session January 21, as AI gurus announced a $500 billion plan (scaled up from an initial $100 billion bet) to use private money for a veritable plethora of data centers across the entire U.S. The moniker was “Stargate,” not to be confused with “Watergate.”

Joining Trump at the White House meet-and-greet were Open AI founder Sam Altman, Oracle founder Ellison, and SoftBank CEO Masayosh Son. They would find the money, not ask the government for it.

Would it come from Saudi Arab? Saudi crown prince Mohammad bin Salman (aka “Mohammad bone saw”) reportedly told Trump in a phone call last week that his kingdom was looking to invest $600 billion in the U.S. in the next four years.

What’s the U.S. role? Prior to the meeting, Trump repealed a 2023 Biden executive order aimed at preventing some of the AI’s possible downsides, including infringements on civil liberties and privacy and threats to national security.

AI Promise … and Electricity

AI may have enormous promise. It may be able to solve intractable scientific and engineering problems or cure cancer and the heartbreak of psoriasis. So far, it’s chief ability appears to be providing effortless term papers for high schoolers and undergraduates.

Business interests that make profits when their costs increase — regulated electric utility companies — love AI, because of the need for power-sucking data centers. Demand for electricity has been slow or declining for decades. Many more electric intensive data centers – already being constructed to serve cryptocurrency “mining” — could reverse that long-term trend.

The irrational exuberance for data centers raises important questions. The fragile U.S. electric grid is at risk. A sea of data centers could crash the grid. Adding electric demand might increase consumer electric rates across the board. What’s to prevent overbuilding, leaving consumers paying the bills? What impact will quantum computing have on data centers? As the always clear-headed Dan Yurman, proprietor of Neutron News, observes, “A question is whether the AI revolution in the US will really have the customer base to justify this level of investment.”

Who will regulate the data center surge? State utility regulators? The Federal Energy Regulatory Commission? So far, both are involved. A divided FERC in November rejected a plan by independent generator Talen Energy to snuggle up next to an existing nuclear power plant to build a data center. The plan crashed. FERC concluded it couldn’t understand how it would impact the PJM transmission grid.

In Virginia, a data center wonderland pleasuring the incumbent monopoly utility Virginia Electric and Power Co. (aka Dominion Energy), a backlash is occurring. In the Old Dominion, a swath of installations in Loudoun County not far from D.C. has developed. In June, residents of Loudoun, the state’s second largest political jurisdiction, ousted the top elected official after she led the board of supervisors to approve a 2,000-acre farmland rezoning to house more data centers.

More recently, the 2025 session of the Virginia General Assembly faces a series of bipartisan bills looking at energy and water consumption, land use and location, among other issues. Lame duck Republican Gov. Glenn Youngkin, once a data center enthusiast, is waffling. He’s suggesting the issues should be up to local authorities.

Consumer Regulated Electricity (CRE)

What to do? A grizzled ExxonMobil veteran and a young D.C.-area Cato Institute economist with experience at the Department of Energy and FERC are proposing a common-sense, free-market solution to data center madness. It’s simple: get the data centers off the grid and out from under state and federal monopoly energy regulation. They recently discussed their idea with The Quad Report.

Glen Lyons was ExxonMobile’s leader for electricity policy and regulatory advocacy when he retired. The company is a major cogenerator. He also served on the board of the Electric Reliability Council of Texas, the state’s autarkic high-voltage electric grid, during 2021’s devastating Winter Storm Uri.

Travis Fisher was lead author of the Department of Energy’s 2017 Staff Report to the Secretary on Electricity Markets and Reliability. He then was a staffer for Republican FERC Commissioner Bernard McNamee before becoming Cato’s director of energy and environmental policy studies.

Together, Lyons and Fisher have established an advocacy organization they call “Consumer Regulated Electricity” or CRE, pushing this somewhat revolutionary idea: “What if we simply allow large, sophisticated buyers like data center companies to enter unregulated electricity utility arrangements with the suppliers of their choice? Why do we need a regulator to protect large businesses from their decisions, provided their decisions don’t impact the existing regulated grid?”

This amounts to treating data centers as normal business enterprises that can meet their needs as most business enterprises do — by finding contractors and suppliers in conventional transactions. Normal commercial arrangements and rules — land use, zoning, etc. — would apply. This avoids expensive, time-consuming and fraught wrangles with energy regulators. As Lyons and Fisher note — something all who have interactions with federal and state electric regulators understand all too well — “Regulators are risk averse, and the sector’s big players (i.e., regulated utilities) are the grand masters of the rules.”

Data centers would not need to worry about grid reliability to keep their business running. The two parties can make their own reliability arrangements, involving engineering (underground connections, backup generation, storage or through contract provisions).

No regulatory quagmires enriching lawyers, consultants, and special interest groups. No threats to the grid. Overbuilding penalizes the parties to the contracts, not the public. No meaningless White House gabfests and empty posturing.

CER may be catching on. Shortly after the White House’s anodyne photo op with the AI broligarchs, the Wall Street Journal reported that Exxon and Chevron are looking into the data center business:

Major oil companies have plenty of experience in building and operating natural-gas-fired power plants to support their own energy-intensive operations, such as refining, natural-gas liquefaction and petrochemicals. Exxon said in its latest corporate update that it has developed 5.5 GW worth of power projects since 2001.

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This post, originally titled “How to End ‘Data Center Madness‘,” has been slightly edited for MasterResource.

The post ‘Free Enterprise Zone’ for Electricity? appeared first on Master Resource.

Source: https://www.masterresource.org/electricity-policy/free-enterprise-zone-electricity/