This story was originally published by Bridge Michigan, a nonprofit and nonpartisan news organization. To get regular coverage from Bridge Michigan, sign up for a free Bridge Michigan newsletter here.
The data center boom has arrived in Michigan on the heels of new tax breaks that prompted a wave of interest from tech companies looking to build facilities that power cloud computing, artificial intelligence and other digital technologies.
Michigan’s two largest electrical utilities — Consumers Energy and DTE Energy — are both courting multiple data center developers. Some prospective deals have progressed to the point of land purchases and local zoning debates.
To industry advocates, it’s a massive opportunity for Michigan.
“A billion-dollar data center, think about what it does in absorbing property taxes,” said Steve DelBianco, president and CEO of the tech industry group NetChoice.
But folks like Fred Miller aren’t buying it. On Monday, data center opponents gathered by the dozens in an Oakland Community College auditorium to tell state energy regulators as much.
“In the last quarter-century, all of us have seen some very damaging speculative booms in our society and our economy,” Miller said during a public hearing convened by the Michigan Public Service Commission.
“I think we're in one now with AI, crypto and data center development.”
As Michigan navigates its place in the global data center boom, commissioners will soon make a series of decisions addressing some of the thorniest questions about the industry’s future in the state, from who will pay for potentially billions of dollars’ worth of new electrical infrastructure to serve energy-hungry data centers to how utilities can absorb that demand without falling behind on climate goals.
Perhaps most importantly: Who picks up the tab if the boom goes bust?
“Data centers do not have significant numbers of on-site employees, and do not have significant local supply chain needs, making it easier for data centers to ‘pick up shop’ and reduce or leave the Company’s service,” Consumers Energy Director of Cost and Pricing Laura Connolly wrote in a filing with the Public Service Commission earlier this year.
“These factors create a greater risk for stranded assets.”
Consumers has asked state regulators for permission to create a special rate structure applying to the biggest data centers, each of which can have the energy footprint of a mid-sized city.
Meanwhile, the Public Service Commission is preparing to set ground rules for utilities that will soon file plans spelling out how much power demand they expect in the coming years and how they plan to meet it. That, too, is a process made difficult by a lack of clarity about just how much data center growth Michigan could see.
Growth and uncertainty
Data centers — large server farms used to power artificial intelligence, social media algorithms, cloud storage and other data-intensive pursuits — are proliferating across the country, with demand expected to rise by 33% annually through the end of the decade.
So far, Michigan has none of the massive hyperscale facilities owned by the likes of Microsoft, Google and Meta, but that appears poised to change after lawmakers last year authorized tax breaks to lure the industry to Michigan.
Microsoft has announced the purchase of two sites in Allegan and Kent Counties totaling 588 acres for potential data center development, while officials from the Howell area to the rural outskirts of Ann Arbor and Kalamazoo are pondering data center proposals.
Industry proponents see the flurry of activity as a boon for Michigan.
Large data center projects bring in hundreds of workers for multi-year construction, along with a smaller number of permanent employees tasked with maintaining servers. But the big appeal is the local property tax revenue, said DelBianco.
“In Loudoun County, Virginia, over half the property taxes are paid by the data centers,” he noted, a windfall that has prompted local officials to take the rare step of lowering residents’ tax rates.
But opponents fear that, without safeguards, data centers’ energy and water demand will tank Michigan’s climate goals, overtax water supplies and leave household utility customers picking up the tab for the electricity infrastructure build-out required to serve the facilities.
“Without protections, AI data centers could leave us holding the bag,” said Michelle Martinez, director of the Tishman Center for Social Justice and the Environment at the University of Michigan.
In 2023, Michigan lawmakers passed laws requiring the state’s utilities to achieve 100% clean energy by 2040, with milestones along the way. But the law allows utilities to win extensions if they can show “good cause” for their struggle to meet the deadlines.
In some states already hosting big data centers, utilities have been forced to delay the closure of fossil fuel-burning power plants to serve the energy-hungry facilities, while residents have also seen electricity rate increases to pay for infrastructure upgrades that benefit data centers. Similar concerns have emerged around the facilities’ water use.
Uncertainty about the industry’s future only adds to the concern.
While the data center industry is booming today, evolving technology and the skyrocketing value of AI companies have prompted fears of a “bubble” in which predicted demand fails to materialize, prompting developers to cancel data center projects after utilities have already invested in transmission lines, power plants or other infrastructure to serve the facilities.
Fearing such an outcome, Consumers Energy earlier this year proposed special regulations that would apply to massive users like data centers.
The company wants permission to lock data center developers into 15-year contracts that guarantee consistent electricity use. If a data center ceases or downsizes operations mid-contract, Consumers wants the right to charge the company for the power it otherwise would have used. And it wants the right to require data center operators to prove they can pay those costs.
The proposal is designed, in part, to weed out unserious inquiries as tech companies shop around nationally for cheap electricity, available land and low tax rates.
Consumers alone has received dozens of inquiries from data center developers. If they all materialized, it would add 15 gigawatts of electricity demand to Consumers’ load — more than double the current peak demand for the 1.9 million-customer utility.
But most of those inquiries will likely go nowhere. In filings with state regulators, Consumers officials estimated a "more probable” forecast of 2.65 gigawatts in new demand from large-load customers over the next decade.
Even that smaller estimate represents a massive increase that would require Consumers to invest mightily in power infrastructure. The bill for transmission costs alone could come to $780 million.
“The Company must put tariff provisions in place … to protect other customers from stranded assets and increased costs should the data center load not materialize after resources are committed,” Connolly said.
Economic boon or climate doom?
Consumers’ proposed rate structure has received pushback from environmentalists and ratepayer advocates who argue tech companies should be obligated to cover more costs while proving their energy demand won’t jeopardize Michigan’s clean energy goals.
Members of the Michigan Public Service Commission listen to public testimony Monday. The commission will soon issue a high-profile decision about how utilities charge data centers for the multimillion dollar investments in energy infrastructure needed to serve the big developments. (Kelly House/Bridge Michigan) The Environmental Law & Policy Center, which has intervened in the case before the Public Service Commission, is also pushing for a requirement that data center developers procure clean power for their projects.
“Data centers don't necessarily have to be a negative, in terms of meeting a state's clean energy goals,” said Katie Duckworth, a senior associate attorney with the Environmental Law & Policy Center. “But that is only possible if you put in the right regulatory incentives and rules.”
Data center developers, meanwhile, argue Consumers’ proposed terms are “discriminatory and onerous.” They’re advocating for a shorter 10-year contract term, more freedom to fluctuate power demand and lower exit fees, among other things.
Lucas Fykes, energy policy director for the Data Center Coalition, an industry lobbying group, warned that too-stringent terms could discourage energy-intensive industries from choosing to locate in Michigan.
“Data centers may be the first wave to the shore, but advanced manufacturing, onshored manufacturing, electrification of buildings and vehicle fleets, hydrogen production and a number of other industries that use large amounts of electricity are coming to the United States over the coming years,” Fykes said. “Making sure that we get it right now, in these proceedings, is really important.”
Officials with the Michigan Public Service Commission, who are not commenting on the Consumers case, are expected to issue a ruling as soon as next month.
We note Consumers Energy is a financial supporter of WCMU. We report on them as we do with any other organization.
This article first appeared on Bridge Michigan and is republished here under a Creative Commons Attribution-NoDerivatives 4.0 International License.
