Google offers power-payment safeguards for Minnesota data center as cost concerns persist

Google is offering to keep paying for power capacity even if its proposed Minnesota AI data center uses less than expected. In an October 19 CNBC report, Google and Xcel Energy defended that approach as protection for other customers. The 780-megawatt project still needs regulatory approval, with Minnesota’s ratepayer advocate questioning whether the safeguards go far enough.

The proposal centers on Pine Island, a Minnesota town of about 4,000 residents southeast of Minneapolis. Google plans to finance 1,400 megawatts of wind, 200 megawatts of solar and 300 megawatts of battery storage for Xcel’s grid. The company presents that investment as a way to support its data-center growth while advancing its goal of operating on carbon-free energy around the clock by 2030.

Those additions exceed the data center’s stated capacity. Google says that is necessary because wind and solar do not generate electricity at all times. Xcel says the new power would serve all customers in the local area, not just Google, and help increase the grid’s carbon-free supply.

Two proposed payment protections

• A minimum bill: Google says it would pay for at least 75% of its contracted capacity even if it uses less. That creates a payment obligation that does not disappear simply because the company’s electricity use falls.
• An early-exit charge: If Google terminates the agreement early, it would owe up to eight years of minimum demand charges. The proposed fee is intended to keep Google responsible for infrastructure built to serve it.

Nobody wants to have a big buildout and then have nowhere for that power to go and nobody to pay for that power.

Amanda Rome, Xcel Energy executive vice president and chief customer officer, speaking to CNBC

The state’s consumer advocate had already challenged the arrangement. In October 1 comments to the Public Utilities Commission, Attorney General Keith Ellison’s office argued that Xcel had not demonstrated adequate protection against costs shifting to other customers. Its Residential Utilities Division represents residential and small-business utility consumers in commission proceedings.

The two sides’ financial assessments differ sharply. Xcel claims the arrangement would deliver more than $1.1 billion in net benefits to other customers. The attorney general’s office says its analysis points instead to roughly $1 billion in net costs. Those are competing assessments of the proposed agreement, not savings or charges already realized.

The office also identifies a risk beyond Google’s 15-year contract: customers could inherit costs for infrastructure that outlasts the agreement. It says early termination would increase that exposure. Separately, it argues that Xcel’s extensive trade-secret redactions obscure potential bill impacts and should be specifically justified or removed where inappropriate.

CNBC’s new interviews also challenge the premise that meeting data-center demand requires such large additions. Jigar Shah, a partner at clean-energy consultancy Multiplier, argues that smaller facilities placed where grids have spare capacity could reduce the need for new generation and transmission equipment. Their payments could help spread existing infrastructure costs across more electricity use.

David Pomerantz, executive director of the utility watchdog Energy and Policy Institute, points to a different incentive. Utilities can earn returns on newly built infrastructure, he told CNBC, with investor returns typically around 10%. His concern is that building more can be financially attractive to utilities even when making better use of existing assets is an alternative.

Shah nevertheless describes the Google–Xcel proposal as a positive example of a data center encouraging newer, greener technology. The next decision belongs to the commission, which can approve, modify or reject the agreement. Minnesota law requires it to consider both assigning attributable costs to very large customers and protecting everyone else from stranded infrastructure costs.