Let Them Eat Cake or Unplug: The AI Big Tech Bro Effect
November 7, 2024
I spotted a news item which will zip right by some people. The “real” news outfit owned by the lovable Jeff Bezos published “As Data Centers for AI Strain the Power Grid, Bills Rise for Everyday Customers.” The write up tries to explain that AI costs for electric power are being passed along to regular folks. Most of these electricity dependent people do not take home paychecks with tens of millions of dollars like the Nadellas, the Zuckerbergs, or the Pichais type breadwinners do. Heck, these AI poohbahs think about buying modular nuclear power plants. (I want to point out that these do not exist and may not for many years.)
The article is not going to thrill the professionals who are experts on utility demand and pricing. Those folks know that the smart software poohbahs have royally screwed up some weekends and vacations for the foreseeable future.
The WaPo article (presumably blessed by St. Jeffrey) says:
The facilities’ extraordinary demand for electricity to power and cool computers inside can drive up the price local utilities pay for energy and require significant improvements to electric grid transmission systems. As a result, costs have already begun going up for customers — or are about to in the near future, according to utility planning documents and energy industry analysts. Some regulators are concerned that the tech companies aren’t paying their fair share, while leaving customers from homeowners to small businesses on the hook.
Okay, typical “real” journospeak. “Costs have already begun going up for customers.” Hey, no kidding. The big AI parade began with the January 2023 announcement that the Softies were going whole hog on AI. The lovable Google immediately flipped into alert mode. I can visualize flashing yellow LEDs and faux red stop lights blinking in the gray corridors in Shoreline Drive facilities if there are people in those offices again. Yeah, ghostly blinking.
The write up points out, rather unsurprisingly:
The tech firms and several of the power companies serving them strongly deny they are burdening others. They say higher utility bills are paying for overdue improvements to the power grid that benefit all customers.
Who wants PEPCO and VEPCO to kill their service? Actually, no one. Imagine life in NoVa, DC, and the ever lovely Maryland without power. Yikes.
From my point of view, informed by some exposure to the utility sector at a nuclear consulting firm and then at a blue chip consulting outfit, here’s the scoop.
The demand planning done with rigor by US utilities took a hit each time the Big Dogs of AI brought more specialized, power hungry servers online and — here’s the killer, folks — and left them on. The way power consumption used to work is that during the day, consumer usage would fall and business/industry usage would rise. The power hogging steel industry was a 24×7 outfit. But over the last 40 years, manufacturing has wound down and consumer demand crept upwards. The curves had to be plotted and the demand projected, but, in general, life was not too crazy for the US power generation industry. Sure, there were the costs associated with decommissioning “old” nuclear plants and expanding new non-nuclear facilities with expensive but management environmental gewgaws, gadgets, and gizmos plugged in to save the snail darters and the frogs.
Since January 2023, demand has been curving upwards. Power generation outfits don’t want to miss out on revenue. Therefore, some utilities have worked out what I would call sweetheart deals for electricity for AI-centric data centers. Some of these puppies suck more power in a day than a dying city located in Flyover Country in Illinois.
Plus, these data centers are not enough. Each quarter the big AI dogs explain that more billions will be pumped into AI data centers. Keep in mind: These puppies run 24×7. The AI wolves have worked out discount rates.
What do the US power utilities do? First, the models have to be reworked. Second, the relationships to trade, buy, or “borrow” power have to be refined. Third, capacity has to be added. Fourth, the utility rate people create a consumer pricing graph which may look like this:
Guess who will pay? Yep, consumers.
The red line is the prediction for post-AI electricity demand. For comparison, the blue line shows the demand curve before Microsoft ignited the AI wars. Note that the gray line is consumer cost or the monthly electricity bill for Bob and Mary Normcore. The nuclear purple line shows what is and will continue to happen to consumer electricity costs. The red line is the projected power demand for the AI big dogs.
The graph shows that the cost will be passed to consumers. Why? The sweetheart deals to get the Big Dog power generation contracts means guaranteed cash flow and a hurdle for a low-ball utility to lumber over. Utilities like power generation are not the Neon Deions of American business.
There will be hand waving by regulators. Some city government types will argue, “We need the data centers.” Podcasts and posts on social media will sprout like weeds in an untended field.
Net net: Bob and Mary Normcore may have to decide between food and electricity. AI is wonderful, right.
Stephen E Arnold, November 7, 2024
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