A new white paper aims to help regulators, utilities, consumer advocates, policymakers, and large electricity customers address the question of how new large loads will affect electricity rates for existing customers as utilities face an unprecedented wave of large load requests driven by data centers, electric vehicle fleets, and advanced manufacturing.
The paper was released on May 12 by Energy Systems Integration Group with experts from The Brattle Group.
“Impacts of Large Loads on Electricity Rates: A Primer” explains the ratemaking principles and processes that determine who pays for the costs of serving new demand, and conditions under which adding new large load customers can increase or decrease electricity rates for other customers.
The paper identifies five key determinants that most often drive whether large load additions increase or decrease rates for existing customers:
• Amount of system headroom available: When sufficient available capacity exists, a new large customer can be served with minimal incremental capital investment.
• Incremental cost of new infrastructure versus the system’s average embedded cost: Rates for existing customers fall when revenue from new large customers exceeds the incremental infrastructure cost, and rise when it does not.
• Market price exposure: New large loads can increase capacity prices in tight markets, with customers without long-term price protection bearing the impact.
• Load forecast accuracy: Existing customers may bear the cost of underused or stranded assets if expected large load growth does not materialize.
• Tariff design for large loads: Requirements such as take-or-pay, minimum bills, contribution-in-aid-of-construction, reservation charges, collateral, and exit fees can reduce cost shifts and stranded-cost risk.
“Discussions related to the rate impacts of adding new large customers tend to focus on the extremes, but the reality is far more nuanced,” said Long Lam, managing energy associate at The Brattle Group and a co-author of the primer. “A large load that lowers rates for other customers in one service territory can raise them in another, depending on system headroom, cost allocation, and tariff design. This primer gives decision-makers a framework for working through those specifics.”
The paper emphasizes that the rate impact of large loads is not predetermined in either direction.
In general, if the incremental revenue collected from a new large customer exceeds the incremental cost to serve that customer, rates for existing customers tend to decrease, and vice versa. The balance depends on local system conditions, prevailing market dynamics, regulatory frameworks, and the design of tariffs, and utility contracts used to serve large customers.
“The specifics of a given system along with the characteristics of the large load will ultimately determine whether existing customers’ rates will go up or down,” said Trieu Mai, visiting fellow at ESIG. “This paper seeks to conceptually explain these key drivers. An ESIG task force will undertake a quantitative analysis, grounded in rate-making principles, to identify the most-impactful mechanisms to mitigate rate increases, and release a full report in fall 2026.”
