American Electric Power expects strong growth in new data center demand

(Reuters) -American Electric Power has signed letters of intent to connect an additional 15 gigawatts of data centers, or more than 40% of the utility's current peak electrical load, by the end of the decade, company executives said on Tuesday.

Many U.S. electric utilities are seeing unprecedented interest from technology companies racing to secure massive amounts of electricity for data centers that support technology like artificial intelligence (AI) and cloud computing.

"We are excited, challenged and poised to embrace this opportunity," AEP Chief Financial Officer Charles Zebula said on a call with investors after the company reported its second-quarter results. To put the committed new data center load in perspective, the company said its system-wide peak load at the end of last year was 35 gigawatts.

Current data center power consumption helped AEP beat second-quarter profit estimates. The company's commercial load rose 12.4% in the three months ended June 30 as new data processing facilities came online.

AEP said in April that it expected higher commercial load, which is the amount of power used by customers at a given point, over the next several years as the growth of AI and other technologies boost the need for additional data storage and processing.

Data centers could use up to 9% of total electricity generated in the U.S. by the end of the decade, depending on the adoption pace of GenAI and other technologies, an Electric Power Research Institute analysis said in May.

Still, it is unclear exactly how the build-out of new data centers will be funded, whether the projected doubling of demand from the sector will materialize and what safeguards will be put in place to protect everyday power customers from absorbing the costs.

AEP said oncoming data center customers have committed to pay for at least a portion of the costs to build the needed transmission, power generation and distribution lines. The company did not give specifics about the spending.

"These are serious customers that want to get on the grid and are willing to financially commit to do what it takes to get on the grid," Zebula said.

AEP has proposed data center tariffs, which set electricity rates and other power contract terms, to pay for the electricity and infrastructure they are requesting.

The company reported an operating profit of $1.25 per share in the second quarter, beating analysts' average estimate of $1.23, according to LSEG data.

AEP, which delivers power to 5.6 million customers in 11 U.S. states, reaffirmed its annual operating earnings forecast range of $5.53 to $5.73 per share.

(Reporting by Laila Kearney in New York and Mrinalika Roy in Bengaluru; Editing by Shreya Biswas and Paul Simao)