An Indiana utility has come up with an unusual plan for meeting growing power demand from data centers.
Northern Indiana Public Service Co. is launching a spinoff company, GenCo, that is exempt from many of the regulatory proceedings typically required before power plants can be built in the state. The utility, also known as NIPSCO, says that this will allow the new entity to quickly provide the copious amounts of energy that data centers need without pushing excessive costs onto other consumers.
But the move is raising alarm bells for watchdog groups and other critics, who argue that rather than protect consumers, the plan will mainly enrich the utility’s parent company while interfering with market competition and undercutting important regulatory safeguards. It could also set back the state’s clean-energy transition, advocates say.
As regulators around the country wrestle with how to get a lot of power online quickly to serve “hyperscaler” AI data centers, other utilities may be looking at NIPSCO’s “unique arrangement” as “a model for how to maximize profits while meeting new data-center demand,” said Emily Piontek, a regulatory associate at the nonprofit Clean Grid Alliance.
Beating other states in the data-center race
Indiana is attractive to huge data centers because of its cheap land, ample water, special state tax breaks on equipment and energy, and access to both the PJM Interconnection and Midcontinent Independent System Operator regional electric grids. The State Utility Forecasting Group at Purdue University recently predicted that data centers will almost double Indiana’s energy demand by 2035.
NIPSCO highlighted that boom to the Indiana Utility Regulatory Commission during the case proceedings to create GenCo. Vincent Parisi, president and CEO of both NIPSCO and GenCo, told regulators about the sheer number of requests the utility has gotten from potential “megaload” customers, generally data centers, seeking hundreds or even thousands of megawatts of electricity.
But it’s a competitive business, with other states and municipalities courting the same data centers. NIPSCO says that providing new power quickly, through GenCo, will be key to securing the deals.
The regulatory commission agreed with this reasoning, writing in its September order approving the GenCo plan, “The evidence shows that megaload customers are sophisticated and have many choices available to them when determining where to make developments.” The commission added that relinquishing its jurisdiction over aspects of GenCo “will enable NIPSCO to support Indiana’s efforts to compete with other states to attract this economic development.”
Will GenCo help or hurt Indiana households?
Nationwide, regulators and advocates have grappled with concerns that residential customers could pick up too much of the tab for new generation built to power data centers, especially if the computing warehouses don’t materialize or don’t use as much power as predicted.
NIPSCO says GenCo will protect customers from such costs since it will be responsible for providing the data centers with power. That means those expenses won’t be rolled into the rates paid by other NIPSCO consumers, the utility says.
But Citizens Action Coalition, the state’s main consumer-advocacy group, argues that the GenCo structure doesn’t really insulate customers from the risks of the data-center market.
If GenCo were to lose money, that could affect the finances and credit rating of parent company NiSource and hence impact NIPSCO’s customers, said Citizens Action Coalition Executive Director Kerwin Olson. And he worries some costs of data-center power infrastructure could still be passed on to residential customers, hidden in an opaque process created specifically for GenCo.
In September, the state regulatory commission exempted GenCo from a host of usual procedures. Chief among them is that GenCo does not have to file a detailed plan when it wants to build or acquire new generation. The commission did not set any minimum standards or requirements regarding how power will be provided to data centers, as advocates had hoped. Instead, the commission will review each proposed contract between NIPSCO and a data center, and the related power purchase agreement between NIPSCO and GenCo.
The Citizens Action Coalition called this case-by-case review process unfair and inefficient, making it too difficult for stakeholders to monitor the situation and submit public comments to the commission.
“Every single time a data center comes online, there’s another case; there’s no minimum criteria or boxes that need to be checked,” said Olson. “I know they’re claiming costs won’t be passed on to ratepayers, but we’ve been around the block. When you have what will likely be confidential special contracts, everything redacted, it’s going to be really challenging for stakeholders to dive into the details to ensure that none of these costs are being passed on.”
NIPSCO declined to answer questions but referred Canary Media to a press release quoting Lloyd Yates, NiSource president and CEO, regarding the regulatory commission’s decision.
“This is an important step forward to position Northern Indiana at the center of a fast-growing, economically essential industry,” Yates said.
The Citizens Action Coalition and the Indiana Office of Utility Consumer Counselor, a state agency tasked with protecting consumers, notified the commission that they plan to appeal the approval of GenCo.
Concerns about a market edge
Another major concern of critics is that GenCo will have an unfair competitive advantage over other power producers.
Indiana has a regulated energy market, wherein utilities have the right to serve as monopoly producers and distributors of energy, but regulators must approve how much capacity they build or buy and what they charge customers for the power.
GenCo is largely exempt from this structure, acting more akin to a power producer in a state like Illinois, with a deregulated market. But in Illinois, power producers compete to sell their energy to utilities, whereas GenCo has a guaranteed customer in the form of NIPSCO, and the two sister companies — which share the same parent — set the price NIPSCO will pay GenCo for power.
“The utility affiliate is being treated like an unregulated independent power producer while retaining the guarantee of a monopoly market enjoyed by regulated utilities,” Piontek said. “Essentially, the arrangement insulates GenCo from market forces, and [it] is not subjected to rate regulation. It’s going to be a very profitable arrangement for the parent company and its shareholders … by providing the affiliate with an unearned competitive advantage.”
The Clean Grid Alliance — made up of renewable-energy developers, environmental groups, and other stakeholders — and Takanock, a data-center developer, told regulators in a joint brief that GenCo “turns the federal paradigm which encourages competition … on its head by proposing that GenCo, and only GenCo, provides generation services to NIPSCO to serve its megaload customers.”
In testimony, Takanock founder and CEO Kenneth Davies told regulators about problems his company has had trying to acquire power from NIPSCO for a planned data center. Davies described the NIPSCO-GenCo relationship as “anticompetitive,” and lamented that NIPSCO will not allow new data-center customers to buy power on the open market themselves, as some existing industrial customers are allowed to do. Davies said NIPSCO seems to be “picking and choosing” which data centers to prioritize, and he is worried Takanock could be treated unfairly, since confidential contracts would make it difficult to compare the arrangements other data centers are getting.
Davies and other stakeholders say there are ways for NIPSCO to protect customers from data-center costs without creating a new market entity with an unfair edge.
Takanock and the Clean Grid Alliance, in their filing, criticize GenCo for failing to explore the more common method of pricing tariffs designed specifically for data centers. That’s where a utility makes an agreement with state regulators to treat data centers differently from other customers, ensuring they pay their fair share of costs. Davies described Wyoming regulators’ creation of such a special tariff to serve a Microsoft data center. Davies was Microsoft’s director of renewable-energy strategy and research at the time.
In another example, Citizens Action Coalition reached an agreement last year with utility Indiana Michigan Power and three new data centers, requiring long contracts, exit fees, and other protections to ensure the centers pay the full costs of infrastructure built to serve them, even if they don’t use as much power or operate for as long as expected. The agreement also requires the data centers to pay millions of dollars to support low-income electricity customers with benefits like weatherization.
Advocates point out that Indiana already has a law on the books meant to help utilities more quickly get power online to supply data centers, without sacrificing transparency or relying on a new entity like GenCo. HB 1007, enacted in May, gives utilities an expedited approval process for new generation if they provide information about the impacts on customers, predicted load growth for the next five years, and the potential of grid-enhancing tech to avoid investments in new power plants, among other things.
“NIPSCO decided to ignore 1007 and create what we think is a shell game, a scam, with this unregulated affiliate doing Lord knows what,” said Olson.
Clean-energy implications
The creation of GenCo will likely undermine the clean-energy transition in northern Indiana, advocates say. NIPSCO has already made clear its plans to build lots of natural-gas-fired generation to power data centers, and if this is carried out through GenCo, stakeholders will have little opportunity to weigh in on the implications.
This is a disappointing shift for environmental groups that had praised NIPSCO for plans it announced in 2018 to retire all coal plants within a decade and build out renewables, reducing carbon emissions by 90%.
By contrast, NIPSCO’s 2024 Integrated Resource Plan says that if contracts with data centers are in place, the utility will build over 1,700 megawatts of gas generation by 2030 and another over 2,000 MW by 2035. Already, NIPSCO is seeking an air permit to build 2,300 MW of gas-fired generation at the site of a retiring coal plant, in order to serve data centers.
“GenCo is certainly a concern for the climate, demonstrating that NIPSCO has done a complete strategy reversal on sustainability,” said Ben Inskeep, program director at Citizens Action Coalition. He said the utility’s 2018 resource plan “was groundbreaking for leading the way on a clean-energy transition. Now, they are pursuing a strategy that appears to be 100% natural gas for new data centers, with no additional clean energy to serve the additional load.”
If NIPSCO had to turn to the open market to procure the power that data centers need, Piontek noted, more renewables would likely get built along with the gas-fired generation.
“Clean-energy resources like wind, solar, and energy storage outcompete other resources in speed-to-market and remain the most cost-effective resources available, making them an attractive option for bringing data centers online in Indiana,” Piontek said.
