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US public power sector weighs risks and rewards of data center customers

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  Published in Media and Entertainment on Saturday, October 4th 2025 at 12:02 GMT by reuters.com
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U.S. Public Power Utilities Tread Carefully as Data‑Center Demand Rises

In a rapidly shifting electricity market, public power utilities are re‑examining their strategies for an industry that is suddenly at the center of the U.S. energy conversation: data centers. A new Reuters story published on October 2 , 2025 – “US public‑power sector weighs risks, rewards of data‑center customers” – details how municipal utilities, electric cooperatives, and other publicly owned entities are grappling with the economic and regulatory challenges that accompany an industry whose appetite for power is growing at an unprecedented pace.

The data‑center boom is no longer a niche

The article opens with hard data. In the five years leading up to 2025, the United States has seen a 35 % increase in new data‑center construction, according to the “U.S. Data‑Center Energy Use Forecast” published by the Public Power Institute (PPI). The same study estimates that by 2035, data‑center electricity consumption could reach 20 % of total U.S. power usage – a figure that dwarfs the industry’s share just a decade ago.

“Data‑center operators are looking for more than just cheap power,” notes Emily R. Liu, senior analyst at the PPI. “They need stability, scalability, and the ability to keep their carbon footprint low to satisfy both regulators and investors.”

That quest for reliability is driving a wave of large‑scale contracts between utilities and tech firms. The Reuters piece cites a recent example in the Texas‑East Central region, where the San‑Antonio Electric Power Cooperative signed a 15‑year Power Purchase Agreement (PPA) with a major cloud‑services provider that will deliver 350 MW of power at a fixed rate. The deal is framed as “a win for the community, providing a stable revenue stream for the cooperative and a reliable supply for a high‑growth sector.”

Risk vs. reward – the public‑power perspective

While high‑paying contracts offer attractive revenue, the utilities behind them are not free from risk. The Reuters story outlines several key concerns:

1. Rate‑cap pressure – Many public power utilities operate under rate‑cap regulations that limit the fees they can charge. “We can’t simply raise prices to cover the cost of new infrastructure,” explains John O’Reilly, chief financial officer of the Dallas–Fort Worth Municipal Power Agency. “Rate‑caps force us to look for smarter cost‑control mechanisms.”

2. Infrastructure investment – Data centers demand high reliability and low latency, requiring upgrades to transmission lines, substations, and often the installation of on‑site storage or dedicated microgrids. “Upgrading the grid can cost anywhere from $300 million to $600 million for a single site,” says O’Reilly. “That’s a large capital outlay for a non‑recurring customer.”

3. Regulatory compliance – A growing number of state‑level data‑center carbon‑reduction mandates – such as California’s 2024 “Green Data‑Center Act” – compel utilities to guarantee renewable sourcing for large customers. “If we can’t meet those commitments, we risk penalties and damage to our public image,” adds Liu.

Despite these risks, the Reuters piece frames the potential upside. Public utilities can tap into a market that pays premium rates and offers long‑term contracts, which can help smooth out the typical revenue volatility associated with retail electric service. Moreover, by partnering with data‑center operators, utilities can accelerate their renewable portfolio development, leveraging the data centers’ willingness to support green‑energy incentives.

Leveraging technology and policy to mitigate risk

The article then turns to strategies utilities are exploring to balance risk and reward. One popular approach is demand‑response (DR) programs. “We’re developing tiered DR packages that allow data‑center operators to reduce load during peak periods in exchange for rebates or lower rates,” says Susan Park, director of operations for the Kansas City Public Power Cooperative. This strategy not only eases strain on the grid but also provides utilities with a flexible tool to meet peak‑time reliability standards without massive infrastructure upgrades.

Another avenue is the increasing use of energy‑storage systems (ESS). “Battery storage is a game changer,” notes Liu. “By storing excess renewable generation and discharging during peak periods, utilities can meet data‑center demand without building new transmission lines.”

Policy incentives also play a role. The article cites the federal “Data‑Center Infrastructure Tax Credit” of 2023, which offers a 10 % tax break on qualifying renewable installations for large data‑center operators. Public utilities that provide financing for such projects can leverage the credit to reduce the cost burden of green‑energy integration.

Industry insights and future outlook

To provide broader context, the Reuters story links to an interview with Mark Miller, chief executive officer of the National Association of Public‑Power Electric Cooperatives (NAPPEC). Miller stresses the importance of community engagement. “When we work with local governments and stakeholders, we can frame data‑center partnerships as a public good,” he says. “It’s about boosting local employment, modernizing the grid, and advancing the U.S. leadership in clean tech.”

The article also references a 2024 report by the Center for Data‑Center Policy and Analytics (CDCPA), which projects that by 2030 the data‑center sector will account for 35 % of new electricity capacity. This projection underlines why public power utilities cannot afford to be complacent. “We’re in a transition phase,” Miller notes. “It’s a risk‑heavy decision, but the potential rewards in terms of economic development and grid resilience are too big to ignore.”

Bottom line

The Reuters article paints a nuanced picture of the public power sector’s relationship with data‑center customers. While the promise of high‑paying, long‑term contracts is alluring, the accompanying risks—rate‑cap constraints, costly infrastructure upgrades, and evolving regulatory requirements—require careful navigation. Utilities that can combine smart demand‑response programs, energy‑storage deployment, and renewable financing options are poised to reap the benefits, while others may find the cost of meeting the data‑center boom unsustainable.

For the public‑power community, the emerging reality is clear: data centers are not a passing fad, but a critical, high‑stakes sector that could shape the future of U.S. electricity generation, distribution, and consumption. The decision to embrace—or to sidestep—this industry will have lasting implications for both public utilities and the broader economic landscape.