In a sign of the times, Xcel Energy’s single largest industrial customer, Evraz Rocky Mountain Steel in Pueblo, is about to be matched by a “hyperscale” data center in Aurora.
Xcel Energy’s biggest customers have been manufacturing and mining companies like Evraz and Climax Molybdenum, but in its resource plan submitted to state utility regulators Sept. 17, Xcel Energy said the profile of its customers may be changing and that is challenging the traditional planning process.
“Especially in today’s landscape with new large loads developing at a much faster pace than seen before, such as data centers, crypto currency customers, and wholesale entities looking for new suppliers, this process is not well equipped to adjust to rapidly changing conditions,” the report said.
Robert Kenney, the CEO of Xcel Energy’s subsidiary Public Service Company of Colorado, said the prospect of these new customers and so-called beneficial electrification has led the utility to boost its load forecasts.
“We’re getting a lot of load growth attributable from what’s anticipated from transportation electrification, from more beneficial building electrification,” Kenney said. “We’re seeing more economic development growth here as well.”
Xcel Energy is now projecting a 21% increase in annual electricity sales over the next eight years to 40,300 gigawatt-hours in 2030. A gigawatt is enough electricity to power 750,000 homes.
“We do know that we’ve got larger loads that are showing up in specific locations,” Kenney said.
As it does for many large business customers, Xcel Energy is proposing a discounted electricity rate — an economic development rate — for the data center being built by Overland Park, Kansas-based QTS Realty Trust.
The proposed rate, which is confidential, has to be approved by the Colorado Public Utilities Commission and both the commission staff and the state Office of Utility Consumer Advocate are arguing that the deal is too sweet.
The data center is already under construction at the intersection of Interstate 70 and C-470 and when it is completed it will need a peak load of 160 megawatts carried to the facility by its own $28 million high-voltage lines.
“It’s a big load, and it’s probably going to grow and I think we are anticipating, potentially seeing similar loads like that,” Kenney said.
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QTS provides data computing access and services for a range of clients needing large computing capacity.
In a 2020 federal filing, the company said its customers include “financial institutions, ‘Big Four’ accounting firms and the world’s largest global internet and cloud companies, to major health care, government agencies, telecommunications and software and web-based companies.”
In 2021, QTS was taken private by the Blackstone Group in a $10 billion deal. QTS did not respond to telephone and email requests for comment.
The data center company operates or is developing 28 data centers across 13 states. It also has two data centers in the Netherlands, according to the company’s website.
The Aurora campus will be among the largest, but not as large as a 750-MW center in Glendale, Arizona, and a 278-MW complex planned for Atlanta. Among its smallest are a 3-MW unit in Jersey City, New Jersey, and a 6-MW center in Sacramento, California.
The Aurora campus, on 80 acres, will consist of four buildings and is projected to ramp up to capacity over 10 years and will “support a wide variety of clients including large and small business customers, tech companies and federal and other governmental agencies,” Travis Wright, QTS vice president of energy and sustainability, said in a PUC filing.
“Data centers are a sector, an industry we’ve been thinking about pursuing for a number of years,” said Yuriy Gorlov, vice president of the Aurora Economic Development Council. “It is a development that is high producing and a low-burden for services and it generates a lot of taxes.”
The data center will be a draw for other businesses from the aerospace industry to logistical services companies, Gorlov said. “These are all major target industries for Aurora. It is opening a whole new market.”
Aurora and Arapaho County offered QTS tax breaks “to get them in the door,” Gorlov said.
A more important lure, however, is an advantageous electric rate, QTS’s Wright said in his PUC testimony.
“Electricity is one of the major costs to operating a data center, so the low EDR rate provided by Public Service, and the terms of the EDR agreement, is a critical factor in determining to locate in Aurora,” Wright said.
Forty percent of the costs of operating a data center is electricity and the QTS business model “can succeed or fail within a very thin margin,” Wright said. “The largest and fastest growing operations in our portfolio are in markets where electricity costs are competitive.”
The proposed rate, however, has drawn criticism from the utility commission staff and the utility consumer advocate, which represents residential and small commercial customers in PUC proceedings.
Xcel customers pay 10 fees or riders — for things such as fuel costs, transmission investments and renewable energy programs — in addition to the charge for each kilowatt they use.
Under the proposed economic development rate QTS would be exempt from the transmission cost rider and a charge when the utility must buy power on the wholesale market to fill a gap in demand.
Xcel Energy has plans for about $4.5 billion in transmission investments to bring wind and solar generation from the plains to Front Range customers, such as QTS. “It is appropriate for QTS to pay for that infrastructure,” Erin O’Neill, the commission’s chief economist, said in a filing.
Similarly, QTS should pay the purchase capacity cost adjustment rider. Xcel Energy enters PCCA contracts “to ensure that it can serve the peak capacity on the system,” O’Neill said. “Since QTS would clearly be adding to that peak capacity, staff believe that it is appropriate for QTS to [pay] the PCCA.”
The utility consumer advocate, while generally supporting the proposal for an economic development rate, challenged the size of the discount calling it an “excessive subsidy.”
The agency recommended a “more reasonable” rate of a 15% EDR discount for the first five years and a 10% discount for the remaining five years.
“PSCo’s proposed EDR discount is excessive and will likely lead to other PSCo customers covering some of the costs associated with QTS,” Ronald Hernandez, a financial analyst witj the state’s Office of Utility Consumer Advocate, said in a commission filing.
Hernandez said that discount should not be more than the annual cost of service to QTS, which is estimated to be $86 million in 2034.
In its resource plan, Xcel Energy indicated that more big electricity customers may be plugging into the system soon.
The resource plan calculates how much electricity the utility will need and the new generation to meet the demand, in this case 6,500 MW of renewable resources.
But even as it submitted the plan, the utility told the PUC it is in “active discussions with numerous entities that could potentially become large new retail or wholesale customers.” There could be another 300 MW of new load as early as January 2026.
The company proposed a “backup bid pool” with a portfolio of 869 MW of gas and solar generation and storage should it need additional resources for these new loads.
The additional cost of the new load portfolio would be $969 million, according to UCA financial analyst Chris Neil.