Regulators approve DTE contracts for Michigan’s first hyperscale data center

State utility regulators on Thursday approved energy contracts for Michigan’s first hyperscale data center
Regulators tacked on conditions that aim to protect ratepayers from subsidizing the industry
Business interests cheered the move, while industry skeptics condemned it

Despite criticism that they were acting too fast, state utility regulators on Thursday approved DTE Energy’s proposal to supply power for Michigan’s first hyperscale data center — while tacking on a host of conditions that aim to protect ratepayers from subsidizing the facility.

The approval, made over shouts of disapproval from onlookers gathered in a Lansing conference room, drew cheers from business interests and ire from skeptics who had called for a deeper public review of the 19-year deal.

Defending the decision, Michigan Public Service Commission Chair Dan Scripps told the gathered crowd that after reviewing them in detail, “I would put the contracts that are in front of us today on par or better with any that have been approved in the country.”

He and other commissioners said they had concluded the deal would save ratepayers money and would not sacrifice energy reliability.

But a wave of public speakers lined up to condemn the vote, raising concerns about lost farmland and habitat, rising power rates, climate pollution from fossil fuels used to power the facilities and additional pollution from the water used to cool servers.

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“We won’t be happy, I suppose, until the Great Lakes run dry, until the farmlands all are gone, until all the air is polluted, said Tim Bruneau, a Saline Township resident who has vocally opposed the 1.4-gigawatt facility planned by tech firms Oracle, OpenAI and Related Digital.

“And guess what happens when that happens? We’re extinct.”

The decision paves the way for tech firms OpenAI, Oracle and Related Digital to team up on Michigan’s first hyperscale data center, a $7 billion Stargate facility where massive buildings full of computer servers will train artificial intelligence models on a 575-acre site south of Ann Arbor in Saline Township.

In a statement, DTE spokesperson Ryan Lowry lauded the commission’s order, saying the contracts “protect our customers — including ensuring that there will be no stranded assets — while enabling Michigan’s growth.”

Supporters of the project have hailed it as an economic development win for the state that will produce millions annually in taxes and 450 permanent jobs. Opponents contend that’s not a sufficient return, citing the risks that energy-hungry data centers could pose to Michigan’s environment and energy grid.

The facilities are massive energy users — the Stargate project’s expected 1.4 gigawatts of demand is equivalent to that of a large American city.

The commission’s decision came amid anxiety that residential ratepayers could wind up subsidizing the substations, poles, wires, battery storage facilities and other infrastructure needed to deliver all that power.

protestors hold up signs at state capitol — Michigan’s surge of data center developments has prompted bipartisan backlash from residents who fear lost farmland and habitat, noise, pollution and other impacts. (Kelly House/Bridge Michigan)

But commissioners agreed with DTE’s conclusion that the deal with Oracle subsidiary Green Chile Ventures would actually save ratepayers $300 million annually, by tapping the tech firm to pay for battery storage and other costs to connect it to the grid.

“That is a real cost savings at a time when affordability is so important,” said commissioner Katherine Peretick.

The decision comes weeks after DTE filed a proposed contract with the MPSC, asking regulators to quickly approve the terms without a public hearing. Such ex-parte decisions are allowed when a contract won’t affect other utility customers’ rates

But Attorney General Dana Nessel and other skeptics of the deal had called for a deeper review, contending that the publicly visible version of DTE’s proposed deal was so heavily redacted, it was impossible to vet DTE’s claims of affordability.

Strings attached

Commissioners tacked on a host of conditions to their approval, giving DTE 30 days to agree to them. Among the most significant, DTE must agree to absorb the financial hit if, for whatever reason, the projected $300 million cost savings fails to materialize.

“If the affordability analysis turns out to be overly optimistic for any reason, DTE bears the responsibility of any extra costs,” Peretick said.

Other requirements include:

In the event of an electricity shortage, the data center must be curtailed before other electric customers.
DTE must file a host of documents showing how it will pay for data center related costs without subsidies from other customers. That includes renewable energy that, under Michigan’s clean energy law, must eventually be installed to serve the facility.
Within 90 days, DTE must file an application for a standard rate structure applying to major power users like hyperscale data centers, which would eliminate the need for one-off contract requests like the one DTE filed for the Stargate project.
DTE must file quarterly reports tracking the data center’s power demand and an annual report assessing Green Chile’s finances.

Scripps said the contract terms and additional conditions set by commissioners “led us to believe that we could meet the standard of reasonableness and in the public interest.”

The data center’s projected power demand would increase DTE’s electric load by 25%. DTE officials plan to absorb that surge without building new power plants. Instead, the utility will buy energy on the open market and get more use out of its existing power plants, including using them to charge the batteries during off-peak hours when other customers aren’t using much energy.

DTE has told investors it aims to bring on as much as 8.4 gigawatts of total data center load in the coming years, a projection that would nearly double the utility’s total power demand.

Consumers Energy, meanwhile, is projecting 2.65 gigawatts in new demand from data centers by 2035, a 35% increase in peak demand.

Concerns that the utilities could pollute or overtax Michigan’s water and electricity systems have resulted in bipartisan pushback, including a new bill to repeal the recently enacted tax exemptions that have lured the industry to Michigan.

Industry supporters, meanwhile, contend Michigan risks falling behind economically if it refuses to host the booming hyperscale industry. While data centers provide few jobs, they contend the facilities are the lynchpin of a broader tech economy in which Michigan is struggling to compete.

“Michigan needs to decide if it wants to participate in the 21st Century economy, or rest on those who came before us and spend that wealth down,” said Detroit Regional Chamber President and CEO Sandy Baruah. He cast it as a race in which “Michigan already has ground to make up.”

Since Gov. Gretchen Whitmer signed a 6% sales and use tax exemption that could save hyperscale facilities millions if not tens of millions annually, Michigan’s publicly announced hyperscale proposals have skyrocketed from zero to at least 15.

Some localities have enacted moratoriums on data center development, looking to buy time to craft regulations governing noise, road setbacks and other concerns about the facilities. In Saline Township, meanwhile, a resident has filed a legal intervention seeking to block the Stargate project over allegations that township officials violated the Open Meetings Act when they approved a legal settlement that made way for the development.

In addition to the utility contracts, developers need permits from the Michigan Department of Environment, Great Lakes and Energy to install diesel-powered backup generators and begin construction activities that would impact wetlands and the Saline River. A public hearing for those requests was scheduled for Thursday at 6 p.m.