Michigan utility customers may pay $6.4bn for two new gas plants to meet datacenter demand, drawing outrage from residents.

The potential burden on ratepayers, especially residential customers, is a microcosm of similar tensions nationwide, highlighting how the utility industry benefits from unchecked datacenter growth.

The proliferation of energy-hungry datacenters in the state of Michigan is driving a DTE Energy proposal to double its electric grid capacity over the next 20 years. DTE is Michigan’s largest energy provider, and among the nation’s biggest utilities. It has asked regulators to approve a long-term energy delivery plan that includes developing a combined 2.1 gigawatts of gas plants in 2031 and 2032, in counties just outside metro Detroit.

The company has already contracted with Google and Oracle to provide a combined 2.4 gigawatts of electricity to hyperscale datacenters – enough to power more than 1.8m homes. It is also poised to announce two more hyperscale contracts, and a potential total of roughly 6 gigawatts’ worth of datacenters could be contracted by the year’s end. If all came to fruition, DTE could need more than two gas plants.

About 2.3 million electric customers in south-east Michigan could be affected. Any plan to saddle residential customers with datacenter costs was “deeply unjust”, said Yousef Rabhi, a public power advocate and former state representative who in August won the Democratic nomination for mayor of Ann Arbor.

“People who are struggling to feed their kids, to put diapers on their babies, to keep the lights on – those people are going to be subsidizing the wealthiest people on the planet to help them make more money, and that is insanity,” Rabhi continued.

The Michigan Public Service Commission (MPSC), which regulates the state’s private utilities, has drawn fire over its previous decisions about whether residential customers should effectively subsidize datacenters. The commission’s leadership is filled with appointees of Michigan’s governor, Gretchen Whitmer, a pro-business, big tech ally who has seen her popularity in the state fall in part over her support for datacenters, which are unpopular.

DTE Energy wrote in a press release that “the plan reflects what [customers] told us matters most to them”.

“We designed this plan to be achievable and affordable – grounded in real analysis and feedback from customers and built to deliver cleaner energy while meeting Michigan’s growing needs for the next 20 years and beyond,” said DTE Electric’s president, Matt Paul. The plan also calls for a significant increase in renewable energy and battery storage, which consumer advocates praised as a positive step.

The MPSC will take input from industry and environmental groups and consumer advocates, among other interests, and issue a preliminary decision within 300 days.

DTE has said the gas plants will replace a coal plant that is being retired, but the retirement agreement was developed in 2023. While DTE around that time said it would need about 940 megawatts of gas in the long term, it now claims it needs about 2.3 times more gas generation than previously anticipated, raising questions about whether the coal plant closure is truly a driver of the gas expansion.

“We are very comfortable with saying that the amount they are currently requesting – the vast majority of that could be attributed to datacenters,” said Helen Li, a senior attorney with Earthjustice, which is representing the Sierra Club in the regulatory case.

The DTE plan includes some analysis of the effects on ratepayers, including residential, but protections will not be determined until later regulatory cases.

“DTE’s approach to the question of ‘who pays’ is unclear, convoluted, and does not ensure that ordinary ratepayers won’t foot the bill for these new, energy-hogging neighbors,” Li said.

The datacenters also may derail Michigan’s nation-leading climate transition laws. Michigan, in late 2023, passed legislation requiring utilities to transition to renewable energy by 2040. But the law included an “off-ramp” that allows utilities to continue running or building fossil fuel plants if renewable sources cannot handle the energy grid’s load.

At its peak, DTE’s grid already demands more than 9.5 gigawatts of power, while the grid’s capacity is 11 gigawatts. DTE may already exceed that with the datacenters for which it has contracts, and it may soon announce several more. The company also develops gas infrastructure across the US, so its parent company benefits from datacenters and is incentivized to add more to the grid.

The mix of energy generation DTE proposed appears to potentially get it close to meeting the climate law’s requirements, but part of that relies on installing unproven carbon capture technology. Additionally, more gas plants could be built if more datacenter contracts are approved, which appears likely.

“This blows a hole in the state’s clean energy laws,” Rabhi said. “Of course they are going to build fossil fuel, and there is a massive environmental cost to this.”