TVA develops separate electric rate class for data centers, which suck up power to train AI
The Tennessee Valley Authority is developing a separate electricity rate class for data centers, which use huge amounts of power to process data for artificial intelligence platforms.
The federal utility's Board of Directors asked managers last November to explore options for putting data centers in their own electricity price category after several major tech companies, including Elon Musk's xAI, opened large-scale data centers in the Tennessee Valley.
Data centers are distinct from other large industrial customers that buy electricity from TVA and its local utilities because they often use more power while creating fewer jobs, making them less attractive for TVA's economic development work.
TVA used to recruit companies building data centers, but stopped giving economic incentive grants to the projects in 2023, including cryptocurrency mining facilities.
The vast majority of data centers in the Tennessee Valley are not direct customers of TVA, but buy power from local utilities, including xAI. Two companies – CC Metals & Alloys and Core Scientific – buy electricity directly from TVA to power data mining operations.
Go deeper: TVA's power is relatively cheap. What about after KUB buys and resells it to you?
Here's what to know about the upcoming change to TVA's rate structure.
How much power do data centers use?: Large-scale data centers, called "hyperscalers," can use more than 100 megawatts of electricity.
The TVA board approved a power agreement in November to supply xAI's Memphis data center, anchored by a massive supercomputer named Colossus, with 150 megawatts of electricity through Memphis Light, Gas and Water. By the estimate TVA uses, that's enough to power nearly 90,000 homes.
What makes data centers a new animal for TVA?: "Before three or four years ago, it was rare to have a customer come on the system who was asking for more than 25 megawatts," TVA CEO Jeff Lyash told Knox News. "Now, we have businesses like data centers that can come on at 300 megawatts and decide three months from now they want to grow 300 megawatts more."
TVA works to maintain rates that are equitable for the diverse kinds of customers it serves, and data centers will have to pay their fair share, Lyash said.
"They should pay the cost of their service, and you shouldn't," Lyash said.
When will new rate structure come into effect?: After a six-month period of talking to companies running data centers and other TVA customers, the utility's managers will bring a proposal for a new rate class before the board at its May meeting in Cookeville, Tennessee.
Would TVA say no to powering a data center? TVA does not turn down customers who want to build facilities in the Tennessee Valley, Lyash said on a quarterly financial call on Feb. 5.
'We don't tell customers no. The answer from us is always yes," Lyash said. "We may have to build assets, transmission or generation, and we try to work with them to make sure we meet their needs while we're maintaining the reliability and resiliency of the system.'
Large industrial customers like xAI may have to enter demand response programs as a condition of power agreements. The programs require companies to use less electricity when TVA is facing high demand for power, like during January's record-setting winter storm.
How many data centers are in the Tennessee Valley?: It's difficult to find accurate and complete information about how many data centers operate in the U.S. or in specific regions. Because only a few data companies are direct customers of TVA, the utility does not keep track of how many there are in its service area.
There are 45 data centers in Tennessee, according to datacentermap.com, though the number could be higher.
How does TVA set electricity rates?: The TVA Act, the utility's governing legislation, gives the board sole responsibility for setting its electricity rates. Its rates are not subject to judicial review or approval by any other regulatory body.
TVA sells power to 153 local utilities and around 60 large industrial customers, like the U.S. Department of Energy in Oak Ridge and Ford's Blue Oval City campus in West Tennessee. Its residential rates are lower than 80% of the top 100 U.S. utilities and its industrial rates are lower than more than 90% of the top 100 U.S. utilities, according to TVA's annual financial report for 2024.
TVA electricity rate dropped last year: The utility's average electricity rate in 2024 was 7.4 cents per kilowatt-hour, which was lower than the year before.
Though TVA raised its base electricity rates twice in two years, the increase was offset by lower costs for fuel to run its power plants. Fuel costs are factored into the price customers pay for power.
Daniel Dassow is a growth and development reporter focused on technology and energy. Phone 423-637-0878. Email daniel.dassow@knoxnews.com.
Support strong local journalism by subscribing at knoxnews.com/subscribe.
This article originally appeared on Knoxville News Sentinel: TVA considering separate electric rate for power-hungry data centers
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