Xcel Energy on Thursday unveiled a special tariff for new, power-hungry data center customers aimed at ensuring centers pay their way and that other utility customers don’t get hit with the costs.
The Colorado Public Utilities Commission ordered Xcel Energy, the state’s largest electricity provider with 1.6 million customers, to create a tariff, concerned that data center demand could drive up rates. The PUC must approve the proposed rate.
Xcel Energy’s subsidiary — Public Service Company of Colorado — is projecting these so-called large-load customers will make up two-thirds of its new electricity demand and said it will need 950 megawatts of new generation to serve these customers over the next five years.
Data center construction, spurred by the growth in artificial intelligence, is booming. Globally, data center capital expenditures reached $770 billion in 2025, surpassing both oil and gas and solar investment, according to industry analyst Rystad Energy.
In the U.S., data centers broke a record for electricity demand in 2025 as vacancy rates at centers fell to 1.4%, according to the commercial real estate services company CBRE.
“Demand is outpacing supply,” Pat Lynch, a CBRE executive managing director for data centers, said in statement.
Under the traditional rate setting, the cost of new power plants and transmission lines plus a return on those investments are paid for through customers’ bills. Consumer advocates, legislators and state regulators have voiced alarm over the potential impact on residential and small business customers.
A bill is pending in the state legislature to address some of these issues.
Data center energy demand isn’t just a Colorado problem
Colorado is not alone in trying to cope with the explosion in data center construction. In 2025, state regulators approved 29 large-load tariffs and 77 are pending in 36 states, according to the Smart Electric Power Alliance tariffdatabase.
Consumer advocates say the proposed Xcel Energy tariff is a step in the right direction.
“What the company put forward is a plan that’s responsive to customer representative feedback and is a good framework to ensure other customer classes are not hurt by the addition of these new loads,” said Joseph Pereira, director of the Colorado Office of the Utility Consumer Advocate.
On April 1, the CoPIRG, a consumer advocacy group, and AARP Colorado, which represents people over age 55, launched a campaign urging the PUC to adopt customer protections in data center development.
“Xcel’s proposal looks like a good first step to ensure these data center costs don’t fall on consumers,” said Danny Katz, CoPIRG executive director. “Now it is time for the PUC to check Xcel’s math.”
The Xcel tariff deals with multiple concerns about data centers, from speculative projects to clean energy issues.
“It is a structure for new rates for large loads,” said Jack Ihle, Xcel Energy’s vice president for data centers and large loads. “This is specifically designed for them and is designed to protect the other customers.”
Xcel Energy defines large loads as any customer needing 50 megawatts of generating capacity.
In its last electric resource plan, Xcel Energy wanted PUC approval to add up to 14,000 megawatts of new power plants at a cost of $22 billion. Worried that the company might overbuild because data center demand is uncertain, the commission approved just 6,000 MW of new capacity.
Under the tariff, new data center capacity can only be counted in the utility’s load and service provided after the center has signed interconnection and energy service agreements. The developer must also show it controls the proposed site.
There is a $120,000 deposit and requirement to pay for load and transmission studies bring the upfront investment to $600,000.
The front-loaded costs, and the requirement to sign contracts, are aimed at shaking out speculative projects as data center developers shop for the quickest interconnections to the grid.
For example, in one six-month period in 2024 and 2025 seven potential data customers representing 4,000 MW of load withdrew service requests from Xcel Energy and more than a dozen new prospects with 3,500 MW of load filed service requests, according to a PUC filing.
The data center must sign a 15-year contract, with the center responsible for paying 80% of all the power over the contract and there is a security deposit equal to six months of operations. There will also be a minimum monthly bill.
If a data center seeks to exit its contract before the 15-year term it must pay a fee equal to the sum of all the minimum monthly bills remaining on the contract.
Data centers must pay for all the new generation they require and for the transmission lines to connect to the grid. The tariff provides for expedited approval from the PUC to bring on new generation.
For any system upgrade that may be done for more than one customer or benefits customers generally, the data center will be charged a prorated monthly fee.
The tariff also includes a clean transition component targeted on data centers using clean and emerging technologies such as geothermal and long-duration energy storage.
“So, at the end of the day, the large load customers are paying for the generation we’ll acquire to serve them, and they’re paying for all the transmission we’re building to serve them,” Ihle said.
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