Ohio’s utility regulation landscape recently saw a turning point when the Public Utilities Commission of Ohio (PUCO) approved a novel data center–specific tariff for AEP Ohio. The decision rejects appeals from major technology firms and manufacturers, affirming that data center operators must bear a higher share of infrastructure costs to prevent cost shifting onto general ratepayers. This development surfaces key issues in utility ratemaking and regulation as well as contract risks for data center developers.
What is a Utilities Tariff?
Generally speaking, a utilities tariff is contract through which a publicly regulated utility provides services to its customers. Due to the nature of their industries and significant related public interests, all or portions of public utility company services are often regulated by a state regulatory agency, sometimes in conjunction with a federal regulatory authority. Utilities provide essential services necessary for health, safety, and economic productivity. A stable, functional network of utilities is a fundamental component of the public’s economic engine.
In Ohio, public utility regulation is provided for under Title 49 of the Ohio Revised Code. To establish or change a tariff, a utility must submit an application with the state public utility commission (PUC), which is then reviewed according to law under the PUC’s administrative procedures. In administering tariff review proceedings, PUCs must balance public interests in safe, reliable and reasonable cost utilities with utility companies’ protected rights against forfeiture and the state’s interests in the economic benefits of functioning utilities.
Background: The Data Center Tariff, Moratorium and Settlement
AEP Ohio had long imposed a moratorium on new or expanded data center service agreements in Central Ohio to pause influxes of load while evaluating grid capacity constraints. In May 2024 AEP filed a request with PUCO to establish a Data Center Tariff (“DCT”) and a companion Mobile Data Center tariff, seeking to treat new data centers above specified thresholds, such as 25 MW, under differentiated terms.
The 14-month proceeding was contentious. AEP negotiated settlements with some stakeholders while resisting others, incorporating provisions such as stricter collateral requirements, ramp up load periods, minimum billing obligations and exit penalties.
On July 9, 2025, PUCO adopted the tariff with minor adjustments and directed AEP to file compliance rates. The tariff becomes effective upon formal filing by the utility.
Key Provisions and Legal Mechanics of the Data Center Tariff
A. Grandfathering and Eligibility Thresholds
Existing data centers and expansions under 25,000 kW are grandfathered from the new tariff’s full obligations, though subject to review in AEP’s pending general rate case. Only new or expanded projects exceeding 25 MW and mobile data centers above 1 MW are subject to the DCT.
B. Minimum Billing, Ramp Periods and Exit Fees
Under the approved tariff, large data centers must pay for at least 85 percent of their contracted capacity or prescribed billing demand, even if they do not consume that much electricity. A four year ramp up window is allowed, though the minimum billing percentage increases over time. If a customer terminates early, an exit fee equal to three years’ minimum charges becomes due after a defined initial period.
C. Collateral and Financial Suitability
Data center applicants must satisfy stringent creditworthiness and collateral requirements, especially if they lack high credit ratings and demonstrate financial viability.
D. Application Process and Load Studies
Prospective customers must submit a load study request and pay associated fees ranging from 10,000 to 100,000 dollars depending on capacity. Requests must be submitted within 45 days after the tariff becomes effective or customers risk losing their queue position. AEP is required to perform the study within prescribed time limits, including 45 days for standard reviews and 60 days for projects requiring transmission upgrades.
Regulatory Appeal Denied and Implications
Tech giants including Amazon, Google, Meta and Microsoft and the Ohio Manufacturers Association challenged the tariff as discriminatory and burdensome. The Ohio Consumers’ Counsel and PUCO staff supported the plan.
PUCO denied the appeal and affirmed the tariff, rejecting claims that it unjustly singles out data centers for disparate treatment. The Manufacturers Association has indicated possible further appeal to the state supreme court.
The ruling signals a notable shift in Ohio’s ratemaking approach. Utilities may adopt industry specific cost allocation schemes when a customer class imposes disproportionate infrastructure burden. The decision may influence similar debates nationwide as data center loads continue to surge.
Strategic Considerations and Legal Risks
- Location matters even more: As utilities are tied to certain geographic footprints, companies and site selectors may dive even deeper into utility considerations when evaluating current and future operations to understand risks and opportunities presented by utility networks and PUC regulatory environments.
- Contract risk for developers: Developers should scrutinize contract terms, including exit fee triggers, ramp schedules and minimum billing obligations, to assess revenue risk and potential stranded obligations.
- Equity and discrimination claims: Challengers may press Equal Protection or certification based arguments, contending that targeted tariffs must satisfy heightened rational basis or regulatory fairness review.
- Regulatory precedent and rate design: The decision challenges traditional single class ratemaking norms. Regulators in other jurisdictions may adopt more aggressive cost causation frameworks, especially in high load sectors.
- Grid planning and forecast integrity: The tariff requires more accurate demand forecasting to avoid overbuilding and shifting stranded cost burdens to non-data center customers.
- Appeals and legal challenges: Parties dissatisfied with PUCO’s ruling may seek rehearing or pursue litigation before the Ohio Supreme Court, particularly on constitutional or tariff design grounds.
Contact
KJK’s Economic Development and Incentives practice group collaborates with our Start Ups and Capitalization team to support data center clients navigating Ohio’s evolving regulatory landscape. We provide strategic guidance on tax incentives and assist with business planning for data center projects. For more information, contact attorneys Rich Morehouse (RAM@kjk.com) or Jace Libman-Phelps (JDL@kjk.com).