There are over 10,000 data centers in the United States. But no big ones in Mississippi. That’s about to change – thanks to Amazon Web Services (AWS) and a package of goodies from the Governor and the MS Legislature. AWS will build two hyperscale data centers here. The first one will be in Madison County.

AWS will invest $10 billion. It’s just another day at the office for Amazon. It has data centers in over 20 states. But its $10 billion will have a big impact here and encourage more investments. The economic multiplier effect could be billions. Investments beget investments. And jobs – including the usual temporary construction jobs. But also some unusual permanent high tech jobs. It’s almost biblical – the Parable of the Talents.

Amazon’s experienced negotiators know how to play governors seeking investments. They got the deal they wanted for AWS. The Governor got the best deal he could for Mississippi. And Entergy got a big new customer. It’s a big deal for Madison County and for Mississippi. What’s not to like? Or to question?

What about Entergy’s other 461,000 customers? Who negotiates the best deal for them? Entergy has a monopoly in 45 Mississippi counties. A government granted monopoly. Customers in its service area (except for some other big ones) have to buy electricity from Entergy at prices it sets. Who sees that Entergy’s prices for these customers are fair?

The Mississippi Public Service Commission (PSC) is supposed to. It’s job is to assure  monopoly customers affordable reliable electricity. Its statutory duty is to determine future electric demand and see that utilities build generation, transmission, and infrastructure capacity to satisfy it. It has failed to do this.

One result of its failures was the Kemper County Lignite plant. That experimental plant didn’t work. It was built to generate electricity for which there was no demand. Mississippi Power paid for most of the $7 billion failure. But the PSC still raised rates 17% on monopoly customers for unneeded electricity from remnants of the plant.

Another result is higher rates for Entergy’s customers. Entergy has two ancient generating plants. They should have been replaced years ago. The PSC ignored them. Entergy continues to run them. Its customers have paid more for expensive and less reliable electricity in the meantime.

Entergy’s CEO said it will invest $2-3 billion in new generating capacity for the data centers and other customers. That’s more than enough to replace the old generating plants with new efficient combined cycle natural gas plants to supply power to the data centers and to Entergy’s monopoly customers. Affordable reliable electricity.

The CEO also said Entergy will invest some of the $2-3 billion in solar plants. That’s virtue signaling. Solar power is intermittent. Unreliable. It destabilizes the electric grid. Will the data centers even take it? Will other customers take it if given a choice?

We have three new PSC commissioners after the last election. They were elected to  address past PSC failures and abuses by utility monopolies. They might do it. But  legislative incentives in the Governor’s package of goodies will stymie them – unless changed. How? Here are incentives that neuter the PSC. And empower Entergy.

• The PSC cannot change what Entergy and Amazon agree to – even if it harms other customers.
• Entergy’s costs to build plants, generate, and transmit power are exempt from competitive bidding.
• Current 4% annual cost increase caps in Entergy’s Formula Rate Plan are removed. Thus there are no limits on Entergy’s annual rate increases related to the Amazon project.
• Entergy may begin construction prior to government permits and approvals.
• Costs incurred prior to approvals are deemed “used and useful” regardless of potential subsequent denials. So the historic used and useful test to determine if costs are prudent and should be included in the rate base is moot.

Entergy is no longer a government regulated monopoly. It’s a government protected monopoly. Who protects its customers?

Amazon’s price is secret. It’s probably much lower than Entergy’s other customers. Does that mean higher rates for those customers? Not necessarily – if the PSC keeps Entergy honest. Amazon’s huge steady demand will provide a base load for Entergy’s new generating plants. Other customers will get the plants’ excess power. How will it be priced?  It’s more likely to be cheaper if it’s subject to regulation.

Rates for other customer could even fall if the PSC had effective authority. How could that happen? Entergy’s current rates reflect high cost electricity from old inefficient plants. The new plants will use the latest technology. They will benefit from economies of scale due to Amazon’s huge load. The contract price for their natural gas fuel will reflect current market conditions – which favor buyers. These differences could mean lower costs for Entergy – and lower rates for customers.

But incentives that neuter the PSC mean higher rates for customers – and higher returns for utility investors. Monopoly utilities are cost plus businesses. The more they invest (spend), the more their customers pay. And the more their investors make. That’s because their rates are set to recover costs plus a 10+% return (profit) on investments. So utilities like high-cost-no-competitive-bid contracts. And dislike PSC oversight to keep them from padding costs.

Data centers require cheap reliable electricity. Lots of it. Mississippi can supply it thanks to geography. We are the first state east of the Mississippi River with access to almost unlimited natural gas from pipelines crossing the state from Texas and other western states headed to northeast markets. We also have space and cooling water that data centers require. Amazon could be the first of many companies seeking better and friendlier sites for data centers – that are increasingly unwelcome (NIMBY) in congested population centers.

Some prospective companies may be deterred by utilities with political clout, central planning bureaucrats, good-ole-boy politics, and other political risks. Bolder prospects may just price a risk premium into their deal with the utility.

Which can pass it on to other customers.

 

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