Xcel Energy is proposing a new rate class for data centers that the company says is intended to ensure that the energy-intensive facilities pay their way instead of passing along the costs to residential and small-business customers.
Xcel filed the proposal Thursday with the Colorado Public Utilities Commission, or PUC. Under the proposal, data centers would have to sign 15-year contracts, provide financial assurance of cash or credit and pay substantial exit fees if they shut down early.
Potential large customers would have to sign service and interconnection agreements before they’re included in the utility’s planning forecast. The provisions would apply to data centers and other facilities using at least 50 megawatts of electricity.
The PUC will hold hearings and take input on Xcel’s plan in proceedings expected to take months. The commission will consider the rates, also called tariffs.
At the same time, the Colorado General Assembly is considering data center bills. One would provide sales and use tax incentives to encourage development of the centers. Another would impose regulations.
Xcel, which is monitoring the legislation, wants to protect residential and other customers from any rate increases caused by data centers and other large users of electricity, said Jack Ihle, Xcel’s vice president of data centers and large loads.
“We’re trying to do that by having the data centers pay for all the generation and transmission we need to serve them,” Ihle said. “We are looking to preserve the reliability of the system.”
The rapid development of artificial intelligence is driving the growth of the computing centers and their spread from previous hot spots such as Virginia to across the country. Xcel Energy’s recently approved plan for new energy resources includes about 2,000 megawatts for high-use customers by 2031.
One megawatt can typically power a few hundred homes.
“There is substantial interest in investing in Colorado data centers and we need to get this tariff in place so that we can get them into the resource plan process and begin to serve them,” Ihle said.
Potential data-center customers accounted for 62% of Xcel’s projected energy growth in its approved by the PUC in November. The company is Colorado’s largest electric utility with approximately 1.6 million customers.
The large computing centers that provide the foundation for digital operations for individuals, businesses and government have raised concerns about the volumes of water they use to cool the equipment and the amount of electricity needed to keep the machines humming 24/7.
Another issue is to pay for more power and the equipment to deliver it. Xcel’s proposal is a good first step in ensuring there is accountability for protecting consumers, Anita Seitz, advocacy director for Colorado Communities for Climate Action, said in a statement.
“This is about making sure data centers carry their fair share of the costs of building out new generating resources and transmission which are mostly going to serve data centers,” Seitz said.
Data center critics worry that the development boom could increase natural gas use, affecting the transition to wind, solar and other renewable sources and slowing goals to reduce greenhouse gas emissions.
Xcel’s proposal includes a clean transition tariff provision to encourage data centers to invest in carbon-free technologies. Companies would invest in those resources and receive a credit for the power the technology produces.
for a new data center in Minnesota calls for providing 1,400 megawatts of wind power, 200 megawatts of solar and 300 megawatts of storage.
Colorado law requires certain utilities to reduce greenhouse gas emissions by 80% from 2005 levels by 2030. Ihle said a longer-term target is using 100% clean energy by 2050.
Xcel’s proposed rates for high-use customers are structured to focus on the demand side, meaning much of the rate would be based on the facility’s peak demand. They would have to pay 80% of the minimum demand charge whether they use the amount or not, Ihle said.
“That provides a mechanism to protect other customers and we can ensure that we have enough revenue for these larger loads, which may be driving specific generation and transmission investments,” he added.
Xcel has recently told regulators that it could be short on electricity this summer and has concerns about potential gaps in 2027 and 2028. The utility’s largest power generator, the Comanche 3 coal plant near Pueblo, hasn’t worked since August and could be down for several more months.
In light of those concerns, does Xcel have any trepidation about taking on hyperscale computing centers as customers?
“The first thing I’d say is there will be zero data centers entering our system and coming online in the summer of 2026,” Ihle said.
Xcel is focused on getting its fleet back into service and is doing everything it can to get Comanche 3 working again, he added. A smaller coal plant set to be retired at the end of 2025 is still operating. And Xcel is looking at short-term market purchases of power.
“We understand and share customer concern over the immense energy needs of new, large customers, such as data centers,” Xcel Energy-Colorado President Robert Kenney said in a statement. ” At the same time we recognize these large customers bring the potential for jobs, investment and innovation to our communities.”
Depending on their size, data centers can generate millions of dollars a year in property taxes, Ihle said.
