Cassady Craighill is technical education director at GridLab, a nonprofit technical consulting organization focused on the electric grid.
As energy demand accelerates, major utilities across the country are rushing to build new gas plants to meet the data center boom.
Gas dominated the PJM Interconnection’s recent interconnection queue, which was reopened for the first time in four years. Gas now represents nearly half of the entire 220-GW queue, nearly doubling what was already in the works in utility plans as of last year. Gas has also dominated the Midcontinent Independent System Operator's fast-track interconnection process, representing nearly three-quarters of the projects included in its Expedited Resource Addition Study. Some of the largest utilities in the United States — Georgia Power, Duke Energy, Dominion Energy — have announced significant capital investment in new gas generation plants to meet data center load growth.
While utilities often seek approval for new gas plants based solely on their upfront construction costs, a new analysis by Current Energy Group and GridLab reveals these "sticker prices" omit a slew of hidden infrastructure costs, including mandatory, long-term contracts for firm pipeline transportation, gas storage and gas processing equipment.
Accounting for these fixed, decades-long fuel liabilities routinely inflates a project’s true cost to consumers by roughly 30%, significantly altering its economic competitiveness against cleaner energy resources. That’s like budgeting for the price of a new house and a new car next year, but failing to account for the closing costs and realtor fees, utility bills, moving expenses, insurance, taxes, gas and maintenance.
Just as a car is useless without fuel, a gas power plant requires a guaranteed supply of natural gas to operate reliably. This requires expensive pipeline capacity, storage facilities and firm fuel contracts. Because utilities typically omit these massive, long-term infrastructure and contractual costs from their initial power plant proposals, regulators and ratepayers face hidden sticker shock later.
This on top of the fact that utilities and regulators are most likely already working with outdated cost estimates for the construction of gas plants, figures that are likely to continue rising and adding upward pressure on customer bills, according to research published last year from GridLab, Energy Futures Group and Halcyon.
Regulators are approving or currently considering major new gas projects with incomplete information and often only a portion of the total ratepayer cost represented in the proceeding. For example, a gas generation plant will go through a Certificate of Public Convenience and Necessity (CPCN) proceeding while the gas storage facility to operate the plant is considered in a separate proceeding after the plant has already been approved using an understated figure. By that point, regulators have tied their own hands since they already approved the plant, which needs the pipeline to operate at a time when demand for new pipeline is sky high.
When comparing what new generation sources are the best fit for a state in order to keep the lights on and costs low, it is critical for regulators to evaluate the full cost of these investments and their operational costs. Otherwise, utilities nickel and dime customers through various surcharges on their monthly bills.
For example, Wisconsin’s largest utility, WE Energies, plans to roughly double its existing gas demand, coinciding with the announcement of a massive Microsoft data center in the state. With that comes $1.5 billion in new gas generation and an additional $668 million in associated pipeline and storage costs to support the new generation, adding 30% to the tab of Wisconsin’s gas buildout that was not included in the CPCN proceedings for the generation projects.
Since the initial analysis done for this paper, their costs have grown to $6 billion in generation costs and $1.3 billion for LNG storage. Even if the new power plant costs are largely covered by the data center, customers may face the risk of seeing new charges on their gas utility heating bill for the costs of these new pipeline and storage projects.
Due to the separate proceedings and fragmented regulatory structure governing electric and gas planning, total cost exposure for ratepayers is dispersed across proceedings and rate recovery mechanisms, leaving regulators to compare incomplete costs when considering other alternatives to meet demand and how we pay for these resources. Discussions of large-load tariffs covered by data centers typically focus on the cost of new power generation and almost never include gas system costs. Yet, as gas prices remain volatile, failure to account for those costs exposes all customer classes to sticker shock.
What will the final tab be for the rush to gas? And who will pay for it? To answer that question amidst the nationwide affordability debate, power grid planners must access and use transparent data on the cost of gas transmission. This report is a first step in identifying the data gap — the lack of standardized gas infrastructure planning documents and the hidden costs buried in confidential utility filings. Without this information, regulators could be dismissing generation alternatives that would relieve the financial burden on everyday customers.
