Data Centers to Pay Fair Share: PUC enacts protections for Xcel customers
In 2025, CUB helped pass nation-leading legislation to ensure Minnesota data centers don’t harm ratepayers or cause the state to miss its emissions reduction standards. Now we’re involved in implementing those provisions.
The Minnesota Public Utilities Commission (PUC) recently approved a framework for how Xcel Energy’s residential customers will be shielded from the costs of serving data centers and other very large customers. Xcel’s proceeding was the first time the PUC considered how to carry out the 2025 legislation.
Protecting Ratepayers
There are four key elements to ensuring that data centers' energy use does not harm Minnesotans.
- Data centers must pay the full cost of their energy use.
- Data centers must cover the costs of new infrastructure built to serve them and contribute to “embedded costs” of the electricity system.
- For ratemaking at the PUC, data centers must be placed in a separate “rate class” so that costs can be accurately calculated and allocated.
Data centers must comply with Minnesota’s carbon-free electricity law.
Minnesota’s new law hits each of these points—and the PUC’s recent decision sets out the details for data centers and other very large customers served by Xcel Energy.
Xcel’s Very Large Customer Tariff
In its recent decision, the PUC approved a “very large customer tariff” for Xcel Energy. These tariffs establish the terms and conditions under which electricity is provided and paid for. Key provisions include minimum billing requirements, innovative cost recovery mechanisms, and various other mechanisms to ensure data centers pay their fair share.
Here’s what you need to know about the framework the PUC approved:
- “Very Large Customers” will be put into their own rate class to ensure the costs of serving them won’t be paid for by other ratepayers.
- “Very Large Customers” are defined as customers with capacity needs of 100 megawatts or more. Further, if a customer requires significant investments to accommodate its power needs, they’ll be put in the same “Very Large Customer” rate class, even if they fall short of the 100 megawatt threshold.
- Certain investments must be directly covered by the very large customer that requires them, including upfront transmission and system upgrades. Other expenses will be directly allocated to the very large customer class.
- Cost recovery mechanisms, or “riders,” will be updated annually to ensure expenses are accurately allocated between rate classes.
- New data centers and very large customers will be required to enter a minimum 15-year contract term, including a 5-year ramp up period.
- If very large customers use less electricity than they initially forecasted, they will still be required to pay a minimum bill that is at least 80 percent of the amount they contracted for.
- Anytime Xcel wants to extend service to a very large customer, they must submit a detailed report to ensure the electricity provided to the facility complies with Minnesota’s 2040 carbon free standard.
Photo: “Google Data Center, Council Bluffs Iowa” by Chad Davis, via Wikimedia Commons, licensed under CC BY 2.0.
What is a “Very Large Customer”?
The law that passed in the 2025 special session does not define “very large customers.” That decision was left to the PUC. In its hearing, the PUC set a two-part standard for determining when new customers of Xcel would qualify as “very large.”
- Any customer with capacity needs equal to or exceeding 100 megawatts (MW) will automatically be considered a “very large customer” and be required to take service under the very large customer tariff. This substantial amount of electricity is enough to power about 80,000 average homes—roughly equivalent to the residential energy usage of a mid-size city.
- CUB raised concerns that facilities with lower energy needs could still require substantial infrastructure investments before coming online. We also wanted to make sure that customers didn’t try to bypass Minnesota’s statutory protections by building facilities that were just shy of the 100 MW standard. The PUC agreed with us and established an additional “system intensive” threshold of 20 MW. Xcel must submit a filing whenever a customer between 20 MW and 100 MW seeks to come online. If the customer requires significant system modifications, design, engineering, or other infrastructure investments to receive service, they will be considered “system intensive” and be required to take service under the very large customer tariff.
Rate Class
Very large customers will be separated into their own “rate class,” which will allow the costs associated with serving them to be tracked and allocated appropriately. When, and if, Xcel seeks to increase rates, any expenses incurred to serve very large customers will be borne by those customers and not households, small businesses, or other ratepayers.
Rates and Cost Recovery
When a very large customer wants to receive service, Xcel will conduct an “incremental cost test” to identify the generation, transmission, and other infrastructure investments needed to bring the customer online. They will then compare those expenses with anticipated revenues from that customer’s electricity bills to ensure the customer is covering the costs of serving them. If projected revenues fall short, an additional surcharge could be added to the very large customer’s bill to make up for the difference. Once a rate case is filed by Xcel, these costs will be allocated to the very large customer class.
Because very large customers require so much electricity, investments will need to be made to accommodate their energy needs, thereby driving up the cost of service. The PUC agreed that all costs attributable to very large customers could be “directly assigned” to the customer or the very large customer class. This helps ensure that none of those costs will be passed onto other ratepayers. Certain expenses—such as transmission and distribution system upgrades needed to interconnect to the grid or expand service—will be covered upfront by the data center or other very large customer.
Lastly, some types of expenses—such as those related to transmission, fuel, and certain renewable energy projects—are recovered outside of rate cases through cost recovery mechanisms called “riders.” Typically, these costs are split between residential and other ratepayer classes based on the electricity needs of each customer group. The proportion of each rider that’s allocated to residential customers, small businesses, and other rate classes is updated in rate case proceedings. If data centers or other very large customers were to come online between rate cases, these allocations would be based on outdated data. For this reason, Xcel was directed to annually update its rider allocation factors. To the extent that costs recovered from very large customers are lower—or those recovered from residential customers are higher—than they should be, the difference will be collected from very large customers and refunded to other ratepayers.
Term Length
By default, new data centers and very large customers will be required to enter a minimum 15-year contract term, including a 5-year ramp up period. Because energy infrastructure will often need to be built to provide service to new facilities, this requirement is meant to ensure very large customers contribute to paying down those costs over the life of the contract term. Longer contracts may be required on a case-by-case basis.
Minimum Bills, Capacity Reduction Fees, and Exit Fees
Included in the tariff adopted by the PUC are various provisions meant to ensure utility costs are recovered from very large customers, even if they reduce their energy consumption or leave the system prior to the end of their contract. Because very large customers require so much electricity, they sign contracts with their utility setting out the amount of capacity they require and agreeing to certain terms and conditions of service. The new tariff requires minimum bills, capacity reduction fees, and exit fees based on 80 percent of that contracted capacity. Notice periods of 12 months and 24 months, respectively, are required to reduce capacity or exit the system early.
This means that even if a very large customer uses less electricity than anticipated, they will still be required to pay a minimum bill that is at least 80 percent of the amount they contracted for. If the customer seeks to permanently reduce their capacity needs below that minimum billed amount, they will be required to pay a fee.
Lastly, exit fees are charged if the very large customer seeks to terminate their contract and exit the system early. Exit fees essentially require very large customers to pay the minimum bill amount for the remainder of the contract term.
Together, these provisions are designed to help ensure Minnesotans are not left paying for generation or other infrastructure built to serve the very large customer.
Clean Energy and Compliance with Minnesota Energy Standards
By law, the electricity provided by utilities to very large customers must meet Minnesota’s energy standards, including the requirement to provide carbon-free electricity by 2040. To comply with this requirement, each time Xcel seeks to extend service to a new very large customer, Xcel must detail how it will meet these standards without resorting to any delays or modifications.
The PUC also directed Xcel to develop and propose a clean energy and capacity tariff pursuant to Minnesota Statute § 216B.1623. This would allow very large customers to serve some or all their energy needs with new clean energy resources beyond what state law requires.
What’s Next?
In the coming months, the PUC will publish a written order formalizing this decision and setting forward the requirements for Xcel’s very large customer tariff.
Individual electric service agreements will be filed for each very large customer that seeks to interconnect to the electricity system, which could contain additional terms or commitments from the customer. These agreements will be reviewed by the PUC to ensure they are in the public interest. Currently, electric service agreements have been filed for Google’s Pine Island and Hermantown data centers, located in the service territories of Xcel and Minnesota Power, respectively.
Other investor-owned utilities are also required to submit similar large load tariffs for PUC approval. Minnesota Power filed a request in February 2026 to retain its existing framework for serving large power customers. CUB opposed this approach and recommended that the PUC direct the company to develop a more robust process for protecting customers. In response to the concerns raised by CUB and other stakeholders—and following the PUC’s decision on Xcel’s tariff—Minnesota Power requested to withdraw its initial filing. The company expects to resubmit a new petition by mid-summer 2026. Otter Tail Power Company just filed its proposal and a comment period will soon be opened for stakeholders and members of the public to weigh in.
Although the new legislation primarily applies to investor-owned utilities, Dakota Electric Association is a member-owned cooperative that has chosen to be regulated by the PUC. As a result, they will also file a large load tariff for approval. That proposal has yet to be submitted.