Critics decry company created to rush power to Indiana data centers

An Indiana utility has come up with an unusual plan for meeting growing power demand from data centers.

Northern Indiana Public Service Co. is launching a spinoff company, GenCo, that is exempt from many of the regulatory proceedings typically required before power plants can be built in the state. The utility, also known as NIPSCO, says that this will allow the new entity to quickly provide the copious amounts of energy that data centers need without pushing excessive costs onto other consumers.

But the move is raising alarm bells for watchdog groups and other critics, who argue that rather than protect consumers, the plan will mainly enrich the utility’s parent company while interfering with market competition and undercutting important regulatory safeguards. It could also set back the state’s clean-energy transition, advocates say.

As regulators around the country wrestle with how to get a lot of power online quickly to serve ​“hyperscaler” AI data centers, other utilities may be looking at NIPSCO’s ​“unique arrangement” as ​“a model for how to maximize profits while meeting new data-center demand,” said Emily Piontek, a regulatory associate at the nonprofit Clean Grid Alliance.

Beating other states in the data-center race 

Indiana is attractive to huge data centers because of its cheap land, ample water, special state tax breaks on equipment and energy, and access to both the PJM Interconnection and Midcontinent Independent System Operator regional electric grids. The State Utility Forecasting Group at Purdue University recently predicted that data centers will almost double Indiana’s energy demand by 2035.

NIPSCO highlighted that boom to the Indiana Utility Regulatory Commission during the case proceedings to create GenCo. Vincent Parisi, president and CEO of both NIPSCO and GenCo, told regulators about the sheer number of requests the utility has gotten from potential ​“megaload” customers, generally data centers, seeking hundreds or even thousands of megawatts of electricity.

But it’s a competitive business, with other states and municipalities courting the same data centers. NIPSCO says that providing new power quickly, through GenCo, will be key to securing the deals.

The regulatory commission agreed with this reasoning, writing in its September order approving the GenCo plan, ​“The evidence shows that megaload customers are sophisticated and have many choices available to them when determining where to make developments.” The commission added that relinquishing its jurisdiction over aspects of GenCo ​“will enable NIPSCO to support Indiana’s efforts to compete with other states to attract this economic development.”

Will GenCo help or hurt Indiana households?

Nationwide, regulators and advocates have grappled with concerns that residential customers could pick up too much of the tab for new generation built to power data centers, especially if the computing warehouses don’t materialize or don’t use as much power as predicted.

NIPSCO says GenCo will protect customers from such costs since it will be responsible for providing the data centers with power. That means those expenses won’t be rolled into the rates paid by other NIPSCO consumers, the utility says.

But Citizens Action Coalition, the state’s main consumer-advocacy group, argues that the GenCo structure doesn’t really insulate customers from the risks of the data-center market.

If GenCo were to lose money, that could affect the finances and credit rating of parent company NiSource and hence impact NIPSCO’s customers, said Citizens Action Coalition Executive Director Kerwin Olson. And he worries some costs of data-center power infrastructure could still be passed on to residential customers, hidden in an opaque process created specifically for GenCo.

In September, the state regulatory commission exempted GenCo from a host of usual procedures. Chief among them is that GenCo does not have to file a detailed plan when it wants to build or acquire new generation. The commission did not set any minimum standards or requirements regarding how power will be provided to data centers, as advocates had hoped. Instead, the commission will review each proposed contract between NIPSCO and a data center, and the related power purchase agreement between NIPSCO and GenCo.

The Citizens Action Coalition called this case-by-case review process unfair and inefficient, making it too difficult for stakeholders to monitor the situation and submit public comments to the commission.

“Every single time a data center comes online, there’s another case; there’s no minimum criteria or boxes that need to be checked,” said Olson. ​“I know they’re claiming costs won’t be passed on to ratepayers, but we’ve been around the block. When you have what will likely be confidential special contracts, everything redacted, it’s going to be really challenging for stakeholders to dive into the details to ensure that none of these costs are being passed on.”

NIPSCO declined to answer questions but referred Canary Media to a press release quoting Lloyd Yates, NiSource president and CEO, regarding the regulatory commission’s decision.

“This is an important step forward to position Northern Indiana at the center of a fast-growing, economically essential industry,” Yates said.

The Citizens Action Coalition and the Indiana Office of Utility Consumer Counselor, a state agency tasked with protecting consumers, notified the commission that they plan to appeal the approval of GenCo.