- Two themes pop up repeatedly in Fierce's recent conversations with industry executives
- First, neocloud players loathe that term
- Second, data center companies argue that utilities are actually the ones to blame for rising power costs. But the evidence is murky
When you talk to as many industry players as we do, you start to pick up on trends. Many of these are technical in nature or simply recurring problems that folks are encountering as they all try to tackle the same challenges. But others are just — for lack of a better word — funny.
Case in point: Neocloud companies absolutely hate being called neoclouds.
This point was independently and organically made by executives from both Nebius and Lambda in recent interviews. But the reason behind the beef depends on who you ask.
Nebius Chief Revenue Officer Marc Boroditsky referred to the term as “a convenient trash bin analysts put us all in.” But he argued that not all companies deemed “neoclouds” are the same. Some are software-only, while others are full-stack, he said.
Lambda’s VP of Data Center Infrastructure Ken Patchett also expressed disdain for the moniker. His preferred term? “Emerging hyperscalers.”
“I’m not a fan of ‘neocloud,’” he said. “Google was an emerging hyperscaler, Facebook, Microsoft, Oracle, all of them emerging hyperscalers at one time, right?”
For better or worse, the term is likely to stick. But that’s just one of the themes that has popped up in recent conversations.
The other? Data centers aren’t to blame for rising power costs.
Power struggle
Over the past two months, we’ve heard the “it’s not our fault” line from Patchett, Flexential CEO Ryan Mallory and a third data center executives who spoke to Fierce on background.
This narrative seems to have emerged in response to the idea that data center demand is driving increased power prices for consumers as utilities scramble to build the required generation and transmission infrastructure to serve their ravenous appetites.
According to these executives, data center companies are paying their fair share for infrastructure upgrades and shouldering the cost of the substations and transmission lines that are required to feed their facilities. As for who is to blame for rising costs, they pointed the finger at the utilities themselves.
Mallory summed up their position most succinctly: “If I was in their shoes and hadn’t invested in infrastructure in 50 years, I would want a scapegoat, too.”
Truth of the matter
The truth of who is to blame is perhaps a bit more muddled than you’d hope.
Bank of America analysts appeared to pin the tail for rising energy costs squarely on data centers in a recent research note focused on U.S. consumer spending on utility bills. In a nutshell, they said spending on enhancements in transmission and distribution infrastructure triggered by data center buildouts is felt across “the tariffs of all the ratepayers (residential, commercial and industrial) on the system.”
Bank of America added there will likely be continued pressure on consumer utility bills as demand continues to outstrip supply in the near term.
Meanwhile, a study released by the U.S. government’s Lawrence Berkeley National Laboratory in October — which was cited to Fierce by one of the data center executives — found that “state-level load growth in recent years (through 2024) has tended to reduce average retail electricity prices.”
But looking deeper, the report also notes “this negative load-price relationship was pronounced when considering overall average retail prices but was smaller and lost statistical significance when analyzing residential prices alone.” The report also acknowledged that load growth over the period analyzed was driven by commercial customers and the utility model of spreading costs across all ratepayers has “tended to benefit those large, non-residential customers.”
What about the claim that data centers are paying their fair share? Well, Ari Peskoe, Director of the Electricity Law Initiative at the Harvard Law School, said in a recent interview that such statements are hard to verify because the contracts between utilities and data centers are often confidential.
This finger-pointing creates a false binary narrative. In reality, both of these things can be true: data center companies can both pay for the local infrastructure required to serve their facilities and create a level of load growth that requires utilities to upgrade their broader infrastructure at the expense of ratepayers.
That’s why utilities in some of the areas most impacted by data center expansions are starting to create dedicated data center rate classes to even the scales.
Dominion Energy in Virginia currently has one such rate class under review by the Virginia State Corporation Commission. American Electric Power in Ohio recently had its own data center rate class approved by state regulators, but that decision is now being challenged in court.