The Rural Electric Cooperative Response to Data Center Growth

Power demand from data centers has thrust the U.S. utility sector into the highest period of electricity growth in 25 years. This trend has received significant attention, but too often left out of the conversation are America’s rural electric cooperatives. 

Like their investor-owned peers, cooperatives are being approached regularly by data center developers and many are actively trying to attract projects, viewing data centers as a potential growth engine for their rural communities’ employment and tax base. They are also seeing pressures from their member-owners who are wary of the risks of new large loads to energy costs, noise, pollution, and water use. 

It is important for cooperative leaders to understand these risks and to develop tools to protect their utility’s finances and the pocketbooks of the families, small businesses, and farms they serve. Getting these decisions wrong can have significant affordability, environmental, and reliability impacts.

This paper outlines three geographic case studies where rural electric cooperatives are grappling with data center decisions and, from a wide set of cooperative examples, shares practical tools that cooperative leaders can use to protect their existing footprint as well as false solutions to avoid. Rural cooperatives can navigate data centers successfully with good planning and protections — but doing so will require a holistic system view and clear-eyed problem solving in order to protect member-owners.  

We highlight cooperatives in three critical geographies for data center expansion: Texas, Georgia, and Virginia. Each state’s data center and electricity markets are radically different. Yet we observe similarities across state lines: focused conversations on appropriate pricing, wariness over who will hold the project risk, heartburn over becoming overreliant on a few big customers, and actions that put energy transition goals at risk.

A common theme is navigating an uncertain landscape. The hyperscale boom has been highly speculative, with project developers scouting sites in multiple jurisdictions in parallel and many parties making promises they may be unable to keep in order to move quickly. The data center boom requires significant capital expenditures to build AI infrastructure, yet AI revenues are much more uncertain. This could lead to high stranded asset risk

For those cooperatives whose territory is being swamped by data centers, they are at risk of both underbuilding generation to maintain reliability standards as new large loads interconnect and overbuilding generation should load growth not materialize or remain stable over time. Utilities are walking a tightrope.

We also find some bright signs across these case studies, with innovative financing arrangements and risk-mitigation strategies that may allow data centers to supplement and improve cooperatives with an influx of capital expenditures without putting the overall cooperatives and their member-owners at risk. These arrangements include directly-attributed cost structures, subsidiaries, and special rate designs. In addition, some cooperatives are working directly with data centers to steer valuable dollars towards renewable energy and grid modernization.

We hope these case studies and the tools discovered can be a useful guide for cooperative leaders when data center developers are knocking at their door.