The latest on MN data centers: Pine Island & Hermantown
Data centers are top of mind for Minnesotans, and two proposed projects from Google continue to cause controversy: the Pine Island data center and the Hermantown data center. Just this month, Google has made its projected energy use public. Minnesotans finally have a sense of how much electricity these two projects will need to operate, and it’s a massive amount.
The Pine Island data center will require 780 megawatts (MW) of electricity, and the Hermantown data center will require 500 MW. To put that into perspective, a general rule of thumb is that 100 MW can power about 80,000 typical American homes. These data centers’ combined need for 1280 MW of electricity is roughly equal to the power use of more than 1 million households. That’s almost half the total number of households in Minnesota.
How these data centers will receive, generate, and pay for that electricity is determined by utility tariffs and electric service agreements (ESAs) between the company and the utility serving it. The Hermantown data center will be served by Minnesota Power, and the Pine Island data center will be served by Xcel Energy. These agreements are complicated, and have been used to withhold important information from the public. Even after signing non-disclosure agreements, CUB does not have full access to all the information we’d need to properly review Google’s ESA with Xcel.
Nevertheless, CUB’s team has reviewed the proposed electric service agreements and we’ve concluded that what’s been proposed would fail to comply with Minnesota law and fall short of covering the data centers' costs. CUB has filed this analysis with the Minnesota Public Utilities Commission, along with our recommendations of how Google's utility contracts must change so that ratepayers aren't left covering its costs.
This article covers the latest regulatory updates regarding Google's proposed data center projects in Hermantown and Pine Island. To get a full picture of how data centers could impact Minnesota ratepayers, visit CUB’s Data Center page below.
Three key concepts: Hyperscalers, Tariffs, and Electric Service Agreements
Before diving into the ins and outs of the two major data center projects, it’s important to understand what makes these latest data center proposals unique, and what regulatory mechanisms CUB is watching to ensure ratepayers are protected and that businesses like Google pay their fair share.
About Google’s Pine Island data center
Google is proposing to build a 780 MW hyperscale data center in Pine Island, a city of around 3,700 people an hour south of the Twin Cities. For scale, 780 MW is equivalent to roughly 624,000 households, or about a quarter of all the households in Minnesota.
The data center will be served by Xcel Energy. Xcel and Google filed the proposed ESA on April 15. Parties, including CUB, analyzed the proposals. You can read our filing here.
Google and Xcel have claimed that the Pine Island project could provide net benefits of $1.1 billion to Minnesotans, mostly through clean energy development.
However, the Office of the Attorney General has sounded the alarm that the Pine Island project could actually cost Minnesotans $1 billion. They and the Minnesota Department of Commerce argue that the companies are significantly undercounting Google’s cost to the electric system. Unfortunately, both Google’s benefit claim and the state government analyses based on information that Xcel has designated as non-public. CUB has access to some of this information, and we agree that the proposed ESA is inadequate to protect Minnesotans from excessive costs.
Xcel and Google have refused to publicly disclose information about new electricity resources that are required to serve the data center, and nearly all cost figures have been withheld from public view. CUB has access to some of this information under a non-disclosure agreement, but Xcel has refused to provide some information to anyone but the government agencies involved in this proceeding. This has prevented CUB and other parties from fully analyzing the costs and ratepayer impacts of the ESA.
We strongly believe Xcel's and Google's secrecy is unjustified, and that it will be difficult for the public to trust the final decision if they're not able to understand its contents.
CUB's Recommendation: We have supported a motion with the PUC to compel Xcel to share the information. We have also encouraged Xcel and Google to make information public voluntarily. If they do not, we recommend the PUC order Xcel to disclose at minimum high-level information. The PUC has scheduled a hearing for October 22 on this matter.
The ESA for the Pine Island data center was filed before Xcel’s tariff was reviewed and approved by the PUC. The tariff the PUC ultimately approved included more protective measures than Xcel originally proposed. However, Xcel has not yet updated the ESA to reflect these tariff changes.
CUB’s Recommendation: Xcel should update the proposed ESA to reflect the changes made to its approved tariff and to better protect ratepayers. This includes making changes to minimum billing requirements, capacity reduction fees, and exit fees. The ESA should also be revised to state that, if there is a conflict between the ESA and Xcel’s overarching tariff, the tariff terms will prevail. This will ensure that the ESA meets the minimum standards the PUC has already set forth, and that it would be subject to any tariff changes the PUC may make in the future.
Under the proposed ESA, Google will pay for its utility infrastructure costs in two ways. The ESA proposes a “Clean Energy Accelerator Charge,” which covers a portfolio of nearly 2,000 MW of new clean energy projects Google will pay for over 15 years.
However, it will take 25 to 35 years for many of those projects to be fully paid off. If Google is only required to pay over a 15-year period, other Minnesotans could be stuck paying for those resources for the remaining life of the facilities, which contradicts the requirements of Minnesota law.
Second, Google will need more power than will be provided by this portfolio. Xcel says it will meet Google’s additional electricity demands with “generic” generation resources. The generation capacity of these resources has not been made public. CUB has the same concerns here as above: these resources may not be fully paid off over Google’s 15-year ESA, leaving other ratepayers at risk of being stuck with the remaining costs.
Further, Google will require more than just new generation. The data center will also use Xcel’s existing power generation, transmission lines, and other elements of the system that serve all customers. The proposed ESA does not fully cover Google’s share of these so-called “embedded costs.”
CUB’s Recommendation: Google should be required to pay for the assets as long as they receive service or until the assets are fully depreciated. Google must pay for any new infrastructure built to serve its data center as well as its portion of shared system costs. Further, we support the Attorney General’s recommendation that Google should be charged an extra fee if they decide to leave the system before those facilities have been fully paid off. This would ensure that any resources built to serve Google are paid for by Google.
Under Minnesota’s new data center law, the Pine Island facility is required to contribute to low-income energy conservation and weatherization measures. Given its recently disclosed size, the facility is expected to pay $5 million per year. For its Hermantown data center, Google voluntarily committed additional funding toward Minnesota Power’s affordability and efficiency programs. Google has made no similar commitment for the Pine Island facility.
CUB’s Recommendation: We recommend that Google make a similar contribution toward Xcel’s affordability and efficiency programs.
About Google’s Hermantown data center
Google is proposing to build a 500 MW hyperscale data center in the city of Hermantown, just west of Duluth. For scale, 500 MW is roughly equivalent to the power use of all the households in Minnesota’s four largest cities—Minneapolis, St. Paul, Duluth, and Rochester—combined.
The data center will be served by Minnesota Power. Minnesota Power and Google filed the proposed ESA on March 27. Parties, including CUB, analyzed the proposals. You can read our filing here.
Minnesota Power’s tariff dictating how it serves very large customers has yet to be reviewed and approved by the PUC, but the PUC has confirmed that the Hermantown project, if it meets the usage threshold, will be covered by the tariff. Like Xcel, however, Minnesota Power’s ESA states that the ESA terms would trump the tariff if the two conflict.
CUB’s Recommendation: CUB recommends Minnesota Power update the ESA to align with the tariff, once approved, including revisions to minimum billing requirements, capacity reduction fees, and exit fees. If Google were to ever reduce its electric demand or leave altogether, we also want Minnesota Power and Google to work together to make the transition as gradual as possible. This can help the utility better plan for what happens to the resources that were built for Google and increase the likelihood that they can be put to use.
The Hermantown ESA includes a proposal to develop 300 MW of wind, 400 MW of battery storage, and a publicly redacted amount of “demand response” to be paid for by Google. Similar to our concerns with the Pine Island ESA, we want to ensure that other Minnesota Power customers aren’t at risk of covering the costs of developing new assets if Google decides to leave the system before they’re fully paid off.
Minnesota Power proposes to provide Google with a “Business Expansion Incentive,” which would discount some charges to Google over a five-year period. CUB believes this would violate the statute that requires Google to pay the full costs associated with the data center.
Finally, like the Pine Island data center project, Google will need to use existing power generation, transmission lines, and other parts of the system that serve all customers. The ESA as it is does not fully cover these costs.
CUB’s Recommendation: Google should be required to pay for its full cost, including new infrastructure built to serve the data center and its portion of shared system costs. Google should be required to pay for any assets until they are fully depreciated, or be charged an extra fee if the data center decides to leave the utility system before the assets are fully paid off. Google should not be given a business expansion incentive.
Given the electric demand of the Hermantown project that was just announced, Google will be required to contribute $4 million per year towards Minnesota Power’s low-income conservation and weatherization programs. Google has voluntarily committed an additional $1 million per year for five years toward MP's affordability and efficiency programs.
CUB's Recommendation: Contributions towards these programs will benefit ratepayers in Minnesota Power territory. We encourage Google to consider extending its voluntary commitment for at least the 15-year term of the proposed ESA.