In Fresh Energy’s work in the electricity sector, we often encounter “Electric Service Agreements” or ESAs. ESAs have been used for decades and are the result of two parties reaching a financial agreement related to project development, construction, and utility costs. An ESA is essentially a contract between a rate-regulated electric utility and a large customer, such as a data center or industrial facility, that lays out the electricity needs of the customer and outlines how the utility will address those needs.
Even though ESAs are not a new concept, they are gaining more prominence due to their role in the development of data centers across the country. Hyperscale data centers create significant load growth on the system, usually requiring large amounts of electricity to operate. This means that before a data center can be brought online, the operator must negotiate an agreement with its local utility establishing how the utility will supply electricity to the facility while maintaining affordable and reliable service for existing customers consistent with state law. That’s where ESAs come in. ESAs are the result of these negotiations and are an important step in the regulatory review of any new large utility customer.
Typically, ESAs apply the rules of existing utility tariffs, which specify rates, terms, and conditions for a particular class of customer. ESAs detail a contractual relationship between the utility and a large customer, whereas tariffs lay out the rules for how a utility will provide service to customers in a specific class.
Because modern hyperscale data centers can have high electricity demands, they can have substantial impacts on a utility’s system. ESAs are important for ensuring these impacts do not negatively affect other customers and align with the utility’s Integrated Resource Plan (IRP). When the utility involved in the ESA is investor-owned, these agreements must be approved by the Minnesota Public Utilities Commission (Commission), the agency responsible for regulating investor-owned utilities (IOUs) in Minnesota. The role of the Commission in a proposed ESA is to review the contract to ensure it adheres to state law, meets electricity demand safely and reliably, plans for related infrastructure investments, and protects ratepayers from costs driven by large load users.
The Commission, based on whether the agreement meets legal standards and state law and is in the public interest, can approve, modify, or reject an ESA. If the Commission orders substantial modifications to the negotiated ESA, the utility and its customer may decide whether to proceed under the revised terms depending on the language of the initial contract and the Commission’s order.
Just because an ESA is approved does not necessarily guarantee a data center, factory, or other large electricity user will be built. An ESA is just one step in a larger process with many pieces running concurrently. These simultaneous processes can include things like interconnection review, environmental review, equipment and facility siting, and more. An ESA is focused on whether the utility can supply the facility with electricity in a way that is in the public interest; this is the part of the process where the Commission gives their input.
At Fresh Energy, we view ESAs as an important part of the process where we can advocate to advance the principles we outlined for responsible data center development from our whitepaper published earlier this year — particularly to ensure compliance with Minnesota’s 100% carbon-free electricity law and require data centers to evaluate flexibility as a resource. Alongside our partners, we are intervening in ESA dockets to advance our mission of achieving equitable carbon-neutral economies.
Engaging in ESAs is just one way that Fresh Energy advocates for an affordable and equitable clean energy transition. As Minnesota regulators evaluate the benefits and costs of new projects, including proposed hyperscale data centers, Fresh Energy will continue to ensure that all large electricity users are both paying their fair share and fully meeting their energy needs through clean renewable energy when they do business in Minnesota.