With the debate over data center development taking center stage in Memphis, the power supplier of Memphis Light, Gas and Water — which provides electricity to the city — is looking to insulate residential customers from utility bill hikes due to higher electricity demand.
The Tennessee Valley Authority Board of Directors voted to move data center customers to their own rate class at its Aug. 20 meeting in Memphis. TVA, which is federally owned, is the largest public energy provider in the country.
The new rate structure establishes a separate class for data centers, separating them from residential customers and charging a higher rate. The base rate for existing data centers is expected to increase by about 10%, which TVA Chief Financial Officer
Tom Rice said will go into effect Oct. 1 and be phased in over three years.
For new data centers coming to Memphis or TVA's footprint that require more than 5 megawatts of power, or existing centers that want to add a new load that exceeds 5 megawatts, the company is also implementing a new Capacity Commitment Charge. This is an upfront charge to reflect the incremental capacity that needs to be added to the provider's grid, which is not covered in the base rate. For every megawatt data centers consume over the 5 megawatt threshold, they will pay about $1.5 million per megawatt over a period of three to five years for any new loads, Rice said.
Hyperscale data centers such as SpaceXAI's Colossus and Colossus 2 required significant investments to connect their facilities to the grid, and this change is intended to prevent residential and commercial customers from having to absorb those extra expenses.
TVA recently signed on to a pledge to keep customer bills low in the face of data center explosion originally issued by President Donald Trump's administration. The company's new rates fall in line with that promise, leaders said at the board meeting.
Memphis Mayor Paul Young has been outspoken in his support for the new rate class, and publicly urged the board to implement it. In a recent guest column in The Commercial Appeal, he wrote about the importance of establishing "guardrails" ahead of infrastructure developments.
"This is not about slowing growth. It is about getting growth right," he wrote.
Young also spoke ahead of the Aug. 20 meeting, reiterating the importance of updating policies to protect ratepayers and thanking the board for holding their quarterly meeting in Memphis.
"When new development creates an extraordinary new demand ... the companies creating that demand should help pay for the generation and infrastructure that's required," he said.
This comes days after the Memphis City Council introduced a moratorium on data centers at its committee and regular meetings Aug. 18. If the ordinance passes its next two readings, development of the centers will be temporarily banned within the city.
The goal of pausing development is to give the city time to study the impacts of large data centers on the environment, utilities and infrastructure, Council members said.
Annie Goldman covers government for The Commercial Appeal. She can be reached at annie.goldman@commercialappeal.com.
This article originally appeared on Memphis Commercial Appeal: TVA to charge data centers new rate, offset burden for other customers
