"Proceeding with caution means using something that I think causes a lot of us to cringe sometimes, and that is regulation," Public Service Commission Chair Randy Christmann said in a speech at the North Dakota Petroleum Council's annual meeting Thursday.
He added, "We should be embracing the technology and the opportunities, but as they come in, we need to make sure they are set up in a way so that we avoid the ones that are going to be problematic."
Data centers are a catch-all term for the facilities that house the infrastructure needed for artificial intelligence, cloud computing and cryptocurrencies. A boom in these industries has contributed to U.S. electric demand rising for the first time in decades.
The growth in power demand has come as utilities have retired aging power plants in response to economic and regulatory pressures, while power grid infrastructure is more than a few decades old and coming under strain due to general wear and tear, along with more extreme weather.
Already in North Dakota, one data center built where the power infrastructure was insufficient has been attributed to raising bills for customers of Montana Dakota Utilities by $7.40 a month for two years, or nearly $180 total per customer. The facility was connected to the power grid by a member cooperative of Basin Electric, but these costs got passed on to MDU because of a market mechanism for power sharing between utilities. The state PSC has no rate oversight for cooperatives, and MDU — an investor-owned utility — had no say in the data center being built.
Oil and gas companies think they have a solution to the power problems. Gas is increasingly abundant in shale oil fields like the Bakken — and super cheap. After years of extraction, reservoir pressures have dropped, causing higher levels of gas to come to the surface relative to oil.
If there is too much gas for the system to take on, it gets wasted through flaring or venting. But when used, it can be converted to the electricity that software companies want.
Federal regulatory pressure to zero out flaring or venting gas has caused some state officials to express the concern that without having infrastructure to move or use the gas, oil production will dip.
Rick Muncrief, CEO of Devon Energy, one of North Dakota's largest producers, spoke to an invitation he had this spring to visit with the technology firm Microsoft. He said that the company has an eye on where to get power generation.
Muncrief recounted that while there, a Microsoft executive noted to him, “Twenty five years ago I thought I went to work for a software company, now I realize I work for an energy company.”
According to North Dakota Commerce Commissioner Josh Teigen, around $250 billion in data center investments are looking to come to the state. Gas will play a big role in this coming to fruition.
Data centers are not the only industry looking to use all the excess Bakken gas. New industries like a multibillion-dollar gas-to-liquids plant will also play a role along with using more natural gas for agricultural processing.
Teigen said he sees these investments as shifting a fundamental feature of North Dakota's economy. Since before statehood, the region has mostly been seen as a commodity exporter, but Teigen hopes that using Bakken gas locally can make North Dakota an industrial center.
One idea that Teigen said has been floated for powering the data centers would be for software companies to build their own power generation for their operations. Past comments have indicated this could be massive — anywhere from 5,000 to 10,000 megawatts of generation. For perspective, North Dakota's largest coal plant produces about 1,100 megawatts.
Christmann in his speech said if data centers were going to operate off the grid, that would be great, but he is skeptical about that happening. He said technology companies may not realize that they will need excess capacity to account for when parts of a power plant need to go down for maintenance. Federal pollution controls restricting how often natural gas plants can run may also be something that these companies are not taking into account, he said.
What is more likely, Christmann said, is for the generator to operate "behind-the-meter." That would mean the company would provide its own power but also be connected to the grid. Technically, that could help provide excess generation to the grid, but utilities would also have a responsibility for serving the data center when its generator is not operating. That could require the buildout of another expensive power plant, he said.
"It means they get the best of both worlds, they get to produce their own energy when they want to, but someone else — the rest of the customer base — is responsible to provide them energy when they don’t ... if there is no oversight over these agreements, we can’t be sure that that is what is going to end up happening,” he said.
Basin Electric is in the process of building and permitting new power generation and transmission to meet rising demands. The buildout is not just in response to data centers. The region has experienced rising electric demands since the oil boom due to industry and population growth that began around 15 years ago.
Christmann praised Basin's plans to expand power infrastructure in northwestern North Dakota and said it was necessary for the grid.
But he also said he was worried that the more investments utilities make to accommodate technology companies, the more these costs will get passed back on to everyday ratepayers. Utilities in part make money by charging customers for their infrastructure investments.
Though software companies will need a lot of power to fuel their data centers, there are still investor, regulatory and public pressures to deal with the environmental consequences of using so much power when it comes from carbon-intensive sources. Low-carbon power sources face environmental gripes, though most attention has been on those that contribute to climate change. Scientists say the world has a limited amount of time to address emissions before the climate hits tipping points that change the nature of the global environment.
Muncrief said the focus he heard from Microsoft is to use as much low-carbon power as possible. Nuclear energy is a big part of these plans since it can run around the clock like a gas or coal plant without emitting many greenhouse gases, though that industry faces a number of challenges related to costs and public perception. Figuring out how to integrate renewables as a power source for data centers is also an emphasis for Microsoft, Muncrief said.
Teigen argued that the huge buildout of data centers is inevitable somewhere because of technology companies’ demands. Given this, he sees it as best that the facilities are built in the U.S. — and preferably in North Dakota.
Carbon capture is mostly how state and industry officials see North Dakota getting to low-carbon power — the state's geology is viewed as highly favorable for permanent storage. But the technology is nascent and so far has not scaled much for higher-emitting industries.
Still, Muncrief thinks gas will play a large role. He said he sees the middle of the country — ranging from North Dakota to Texas — as a future data center hub.
"I call it the hydrocarbon fairway — the central part of the U.S. — more and more of the data centers will be built here,” he said.
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