Long Lam, Jadon Grove, Sanem Sergici
The Brattle Group
First Published Q3 2025
As electric utilities are facing the most significant growth in demand in decades, their core responsibilities remain unchanged: to deliver safe, reliable electricity and to recover the cost to serve in a just and reasonable manner. What is evolving, however, is the mechanism by which utilities are pursuing these objectives—specifically, through the development of new tariffs and tariff structures.
The distinguishing feature of the present surge in demand for electricity is that much of it comes from very large customers, who require hundreds of megawatts (MWs) of power and more at a single site. These large customers, such as data centers, can emerge and scale up to their full size rapidly, often within a few years, much shorter than the traditional utility planning horizons, which can extend over decades. And some large customer loads, such as cryptocurrency mining operations, can depart just as quickly as they appear.
To serve these customers effectively, utilities have to balance a number of often-competing objectives. On the one hand, this new group of customers presents a once-in-a-generation growth opportunity for utilities. On the other, utilities have to maintain reliability goals, mitigate financial risks, and meet state policy objectives, such as affordability and economic development. They also have to be responsive to customer demands for fast interconnection and access to clean energy.
To meet the moment, utilities have increasingly relied on tariffs as a tool to balance and achieve these objectives. Properly designed, tariffs can help attract large customers while mitigating exposure to financial risks for utilities and their existing customers. And utilities have acted decisively: in every month of 2025 to date, a new or revised rate for large load customers has either been filed with or approved by state regulators.
Given the complex regulatory landscape and market structure across the US, there is understandably no one-size-fits-all template for large load tariffs. Nevertheless, several patterns are emerging.
First, more utilities are taking a broad perspective when it comes to the question of customer eligibility. The first few proposed large load tariffs placed data center customers in a separate class, reflecting their unique characteristics. These efforts have produced mixed regulatory outcomes. For example, Basin Electric’s proposed tariffs for data center customers and cryptomining customers were rejected by the US Federal Energy Regulatory Commission, who found that the utility “has not provided adequate evidence to support its assertion that all crypto loads pose a greater stranded asset risk than other loads of similar size.” By contrast, the Ohio Commission approved AEP Ohio’s decision to create a specific rate class for data center customers. However, the rate design proceeding was highly contentious, and the data center customers are appealing the Commission’s decision.
Taking note of these developments, many utilities are now moving away from distinguishing large customers “type” in their large load tariffs. Instead, recent tariffs define eligibility based on customer’s power requirements. This strategy helps utilities reduce contention and streamline the regulatory process while accomplishing the same goal, as the majority of customers meeting these demand thresholds are data centers.
Second, serving energy-intensive, large-load customers often necessitates major investments in new generation capacity and network infrastructure. This raises concerns among key stakeholders and regulators that existing customers could be burdened with a portion of these costs. Further, if the customers reduce demand or exit the system after such investments are made, they may expose the utility and existing customers to stranded asset risk. To address these concerns, many utilities have incorporated a common set of mitigation mechanisms in their large load tariffs, including:
Minimum Charges: Utilities are embracing minimum demand charges and minimum bills to ensure that large customers contribute to grid costs, even when their usage fluctuates. For example, AEP Indiana’s recently approved tariff features a demand charge based on the higher of 80% of customer-contracted capacity or 80% of their highest billing demand from the previous year. The minimum charge level is higher in AEP’s approved tariff in Kentucky (90%) and in AEP’s approved tariff in Ohio (85%).
Long-Term Contracts: To provide greater revenue certainty, many utilities are pairing minimum charges with extended contract terms, typically ranging from 8 to 15 years. For example, Evergy’s proposed LLPS tariff in Kansas and Missouri combines an 80% minimum demand charge with a 15-year contract term.
Early Termination Fees: Utilities may include stipulations that provide large customers with the flexibility to terminate service early in exchange for a fee. Kentucky Power’s recently approved revisions to its Industrial General Service rate includes an exit fee if a customer ends the contract before its full term. Most are incorporated as a multiple of the monthly minimum bill.
Collateral Requirements: To protect against financial risks if a large customer suddenly scales back operations or exits the market, utilities are requiring large customers to post large collateral. Customers with a good credit rating and sufficient liquidity may qualify for reduced collateral requirements
“In our experience, there is a “Goldilocks zone”: a balance where tariffs are sufficiently attractive and flexible to meet the needs of sophisticated data center customers, yet structured to protect existing customers from increased costs and future risks.”
Third, to accommodate growing demand for clean energy from large load customers, some utilities through large load tariffs are introducing more novel clean energy procurement frameworks. These frameworks allow customers to have direct control over their energy supply while continuing to utilize the local utility’s transmission and distribution system. For example, under NV Energy’s recently approved Clean Transition Tariff, customers can work with the utility to select and contract for a specific clean energy resource. In return for paying a premium, customers retain the environmental attributes associated with that resource. Similar frameworks are under development by AEP Indiana and Duke Energy. Similarly, several utilities have proposed an alternative approach that would allow customers to pay a premium to cover the incremental cost of the next cheapest carbon-free energy resource identified through the utility’s integrated resource planning process.
Fourth, there is a growing interest in load flexibility among utilities, system operators, regulators, legislators, and customer themselves. Depending on their design and operational characteristics, data centers and other large load customers may be capable of reducing demand in ways that support grid reliability and reduce system costs. Utilities are considering a range of load flexibility programs, including optional demand response programs, interruptible rate structures, and mandatory curtailment requirements during grid emergencies. Efforts to formalize such requirements for large load customers are gaining momentum across several states. Texas stands out as a leading example, having recently enacted legislation to allow the grid operator to curtail large loads with on-site backup generation during grid emergency events.
The growing volume of new tariff proposals—and the creativity and diversity in utilities’ approaches to serving large-load customers—demonstrate how utilities are rising to meet the moment. Successfully serving these customers requires utilities to continually assess whether their rates and procedures align with broader strategic goals, prevailing market conditions, and their tolerance for risk. In our experience, there is a “Goldilocks zone”: a balance where tariffs are sufficiently attractive and flexible to meet the needs of sophisticated data center customers, yet structured to protect existing customers from increased costs and future risks. Achieving this balance demands innovative rate designs, deliberate stakeholder engagement, and a willingness to iterate and adapt as market conditions evolve.
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