TVA Considers New Rate Class for Data Centers

As data centers requiring high-power loads continue to develop and spread across the state, the Tennessee Valley Authority (TVA) is looking to change how data centers pay for power. Officials say their goal is to accommodate the growing demands while protecting the 10 million people who pay their power bills through the TVA.

The TVA sent a letter to its 153 local power companies in February to begin the rate-changing process, proposing several options including the creation of a new rate class specifically for data centers. The changes are not intended as a rate increase or decrease for average customers.

The TVA Board of Directors is expected to vote on proposals in August at the earliest.

Data centers made up approximately 18% of the TVA’s overall industrial load in the past year, according to TVA spokesperson Scott Brooks, and that number is expected to double by the year 2030.

Data centers are reportedly interested in coming to the TVA’s service area because of its reliable, low-cost electricity. While the TVA will not deny data centers the right to move into Tennessee, data centers are expected to work with local power providers and make sure those providers can handle the power load without putting a strain or burden on their customers.

The TVA wants to ensure that data centers pay their fair share and do not put the financial burden on other customers.

Since December 2008, data centers have been charged under the same rate class as manufacturers. Now, the TVA wants to remove data centers from this classification entirely.

The TVA presented several options in its letter to local power companies, including:

1. Create a new class for customers above a specified contract demand size and/or qualifying under certain codes with prescribed unique load characteristics, along with new pricing and capacity commitment requirements.
2. Establish a “capacity commitment charge,” requiring upfront payment to cover the TVA’s costs of serving certain new facilities including data centers.
3. Establish a framework to provide structured, customized pricing solutions to mitigate individual customer impacts.

TVA is in discussions with local power companies about the proposals. There is no public comment period.

Following this rate change – and likely in the next fiscal year – the TVA intends to engage with local power companies on broader rate structure changes. This future effort may include new commercial and industrial rates, new prevailing wholesale rates including an evaluation of the grid access charge, and transmission unbundling.

Tennessee currently has 85 data center facilities, according to the U.S. Data Center Map, with approximately 21 centers taking space in West Tennessee.