Large Loads Are Coming: 5 Cost-Recovery Safeguards Before You Connect One
The call comes in, and it sounds like good news. A developer wants to connect a large new load to your system—maybe a hyperscale data center drawing 300 megawatts around the clock, maybe a hydrogen plant, an EV battery factory, or a crypto operation. The new revenue looks transformative. But before anyone celebrates, the real question for a utility or cooperative is simple: if this goes wrong, who pays?
Large loads are the biggest shift in utility planning in a generation. Data center hyperscalers get the headlines—U.S. planners are forecasting roughly 90 gigawatts of data center peak growth by 2030—but the same risks apply to any outsized single customer. These loads demand custom infrastructure, ramp on compressed timelines, and carry a financial profile that standard large-power tariffs were never built to handle. Get the cost recovery right and the load strengthens your system. Get it wrong and your existing members absorb the cost.
Here are the five safeguards every utility and cooperative should have in place before connecting a large load.
The Top 5 Safeguards
Make the New Load Pay for Its Own Infrastructure
When you build a substation, transmission tie, or distribution upgrade specifically to serve one customer, those costs should follow that customer—not get socialized across the rate base where every other member quietly picks up the tab.
The cleanest tools are contributions in aid of construction (CIAC), direct facilities charges, and dedicated infrastructure riders that isolate the cost recovery. The starting point is a defensible cost-of-service study that shows exactly what serving the new load costs, so the assignment is grounded in numbers, not negotiation.
Set a Minimum Bill or Take-or-Pay Floor
The carrying cost of dedicated infrastructure does not pause when a customer runs below capacity or idles a facility. A minimum bill establishes the floor the large-load customer pays regardless of consumption; a take-or-pay clause goes further, requiring payment for a set quantity of power whether or not it is taken.
These are not penalties—they are cost-recovery tools. Model the floor against your actual infrastructure carrying costs so it provides real protection rather than a symbolic number. Regulators in several states now require minimum bill provisions as a condition of approval.
Require Credit Assurance Up Front
A utility extending hundreds of millions in infrastructure investment is, in effect, extending credit to a developer. Secure it. Letters of credit, performance bonds, cash deposits in escrow, and parent guarantees all work—sized to your at-risk investment and the term of the agreement.
Impressive capital commitments on paper are not the same as a creditworthy counterparty. Spell out drawdown conditions, replenishment obligations, and the requirement to refresh instruments that expire during the contract term.
Plan for the Exit and the Stranded Asset
Large loads move. Facilities get sold, technologies shift, and a twenty-year infrastructure commitment can outlive the customer that justified it. An early termination provision should make the utility whole—covering unamortized infrastructure, lost margin, and any specialized assets that cannot be repurposed for other customers.
Stranded-cost exposure is also a credit story. Rating agencies watch concentration risk closely, and a single large load gone bad can pressure your numbers. Strong exit terms are part of protecting your utility or co-op bond rating.
Take It to the Board and the Members
A large-load agreement is a governance decision, not just a finance one. The board needs to understand the commitment, the protections, and the consequences of getting it wrong before it signs—and members deserve to know that a new customer will not quietly raise their rates.
Public board meetings, workshops, and clear communication build the record that regulators and members will look for later. This is the same discipline behind sound rate setting—see our article on board responsibility for the bond rating.
The Regulatory Dimension
In a growing number of states, these safeguards are no longer optional. Commissions have begun requiring specific ratepayer protections as a condition of approving large-load and data center agreements, and a utility that signs without them faces real regulatory risk if the deal later produces stranded costs. Even where regulators have not acted, the agreement is your first and best line of defense.
FERC is developing a federal framework for connecting large electricity users—including loads above roughly 20 MW—to the transmission grid. The proceeding is expected to address interconnection study requirements, deposit and readiness standards, and network upgrade cost allocation, along with the boundary between FERC-jurisdictional transmission matters and state authority over retail service. Watch for the order and adjust your agreement templates accordingly.
Start With the Numbers
Large-load developers are sophisticated counterparties, and they will push back on minimum bill levels, security sizing, and termination math. That pushback is fair—the goal is a financially sound agreement, not a punitive one. Come to the table with detailed infrastructure cost modeling, a credit analysis of the developer and any guarantors, and a clear read on what your regulators will expect.
The opportunity in large loads is real. So is the risk. The utilities that come out ahead will be the ones that did the cost-recovery work before the contract closed—not the ones explaining to members afterward why their rates went up. Review your rate structure, model the new load honestly, and put these five safeguards in place before you say yes.
Disclaimer: The material in this article is for informational purposes only and should not be taken as legal or accounting advice provided by Utility Accounting & Rates Specialists, LLC. You should seek formal advice on this topic from your accounting or legal advisor.