Indiana approves electrical spinoff for Data Center power and protect pricing

The Indiana Utility Regulatory Commission (IURC) has approved a proposal from Northern Indiana Public Service Company (NIPSCO) to create a subsidiary entity called NIPSCO Generation LLC, or GenCo, to specifically serve the rapidly expanding data center requirements in Northern Indiana. The move comes at a time when major technology companies are investing billions in infrastructure in the Midwest, in part to support the surging demand for artificial intelligence and cloud computing and is intended - according to a statement released by NIPSCO - to “shield NIPSCO’s existing retail customers from costs associated with serving new data center customers.”

GenCo will have the authority to build, own, and operate electricity-generating infrastructure dedicated to supplying power to data centers, while negotiating electricity rates directly with those customers outside the traditional regulatory framework.

Under the terms approved by the IURC, GenCo’s operations will be financially ringfenced from NIPSCO’s existing retail customer base, in order to try and shield current ratepayers from the costs and risks associated with the substantial increase in electric capacity required by data centers. 

By channeling the capital investments for these “large load” customers through GenCo, NIPSCO aims to avoid traditional rate hikes on residential and smaller commercial customers, who would otherwise share the financial burden of such expansions.

This approach is a departure from conventional utility practice. Typically, when adding customers that require additional capacity, the utility would request regulatory approval, and all ratepayers would bear the resulting costs. GenCo shifts the financial exposure directly between NIPSCO and the data center customers, with GenCo responsible for the development and ownership of the needed generation assets. 

The strategic rationale behind GenCo was explained by NiSource Inc., NIPSCO’s parent company, as not only protecting existing customers but also accelerating their ability to serve data centers flexibly and promptly. GenCo will operate as a separate entity dedicated to meeting these demands, aiding in its ability to maintain financial stability and adaptability in an evolving energy market. The initiative is interesting in the face of broader industry trends, as utilities nationwide grapple with balancing grid modernization and surging demand from data centers, which the U.S. Department of Energy estimates that data centers currently utilize 4% of total electricity, and that it could reach 12% by 2028.

According to Investing.com, NIPSCO’s plan also ties into a recently announced large-scale power supply contract with a major investment-grade company’s data centers, commencing in 2027 and expanding through 2032. To meet these commitments, GenCo intends to build additional dispatchable generation facilities.

The approval of GenCo reflects a broader push within the utility sector to innovate regulatory and business models amidst shifting market dynamics, increased electrification, and burgeoning demand from technology enterprises. 

As the first known utility-specific spinoff focused exclusively on the data center sector, GenCo’s progress and outcomes will be closely watched by other states facing similar challenges. The unique regulatory approval in Indiana marks a notable example of an attempt to manage the intersection of massive industrial energy demand growth and traditional utility regulation, with potential lessons for policymakers, energy companies, and technology stakeholders nationwide