Energy CEO: 'AI Data Centers Are Changing Everything We Do' | At Barron's

Excel Energy & the AI Data Center Boom: A Deep Dive with Bob Frenzel

Key Concepts:

• AI Data Centers: Large-scale facilities requiring significant, reliable, and sustainable power sources.
• Regulated Utility: An electricity/gas provider operating under government oversight, typically with guaranteed rates of return.
• Transmission: High-voltage power lines used to transport electricity over long distances.
• Electrification: The shift from fossil fuels to electricity for various applications (transportation, heating, industrial processes).
• NIMI (Not In My Backyard): Public opposition to infrastructure projects in local areas.
• Scope 1 Emissions: Direct greenhouse gas emissions from owned or controlled sources.
• Hyperscalers: Companies building and operating massive data centers (e.g., Amazon, Meta, Microsoft).
• Gigawatt (GW): A unit of power equal to one billion watts.

I. Excel Energy’s Geographic Footprint & Differentiation

Excel Energy is one of the largest investor-owned utilities, headquartered in Minneapolis, Minnesota, serving approximately 6 million electric and gas customers across the upper Midwest and Southwest (Texas, New Mexico). A key differentiator is its strategic location in areas with abundant renewable energy resources – “where the wind blows and the sun shines.” This allows the company to deliver cleaner energy at affordable prices. Specifically, they operate in the Permian and Delaware oil and gas basins, and are actively serving the increasing electrification of oil and gas operations (electric jackup rigs, electric compression) as companies aim for Scope 1 emission reductions.

II. The Impact of AI Data Centers on Excel Energy

AI data centers are fundamentally changing Excel Energy’s business, representing a significant growth driver for the next 10-20 years. Currently, Excel Energy serves approximately 2.5% of the nation’s energy and 2.5% of the nation’s data center load. However, due to a substantial backlog of interest, they anticipate “outsized growth” in this sector. The company has revised its growth estimates upwards, projecting a 25% increase in electricity demand by the end of the decade, followed by another 25% in the subsequent two decades – a 50% increase overall by 2050, largely driven by data centers. They currently have a backlog of 20 gigawatts of data center demand, serving 1.5 GW today and expecting contracts for up to 3 GW by mid-next year. To put this in perspective, Colorado’s peak load is around 7 GW, meaning the backlog represents the equivalent of three Colorados (or one and a half Colorado, given Excel Energy serves half of the state).

III. Addressing Concerns about a Data Center “Bubble” & Protecting Existing Customers

Bob Frenzel acknowledges concerns about a potential bubble but emphasizes proactive measures to protect existing customers. Excel Energy utilizes multi-year contracts (15-20 years) with data centers, incorporating minimum volume take provisions – approximately 75-80% of the cost to serve is embedded within these contracts. This shields existing customers from potential overbuild or market exuberance. The company believes it has “real line of sight” to the next 5-10 years of data center growth, considering it tangible and supported by clear growth signals.

IV. Data Centers & Retail Electricity Prices: A Counterintuitive Effect

Contrary to potential concerns, Excel Energy argues that data centers can lower rates for all customers. The electric grid is largely a fixed-cost asset; increasing production through this fixed cost base reduces rates. New infrastructure required to serve data centers is typically funded by the data center customers themselves (“growth pays for growth”), a practice common in approximately two-thirds of the country. Excel Energy operates in integrated and regulated markets, avoiding the price volatility experienced in deregulated markets, which have recently faced price spikes. Policy makers are actively addressing these issues in deregulated markets.

V. Energy Sources & the Transition to Carbon Neutrality

Excel Energy’s generation mix is undergoing a significant transition. In 2005, approximately 66-75% of its generation came from coal. Today, the mix is more balanced between gas, renewables, and nuclear. By 2030, the company projects approximately 70-75% renewable energy, 15-20% nuclear, and 15% gas. Excel Energy has committed to reducing its carbon footprint by 80% by 2030 and achieving carbon-free electricity by 2050. They are actively exploring advanced geothermal (leveraging fracking technology for cost-effectiveness) and carbon capture and sequestration, while acknowledging the slower-than-expected development of nuclear technology. Wind energy has already saved customers over $5 billion compared to using natural gas.

VI. Transmission Infrastructure & Challenges

Excel Energy has been the leading builder of new transmission lines for the past 15 years and views transmission as a crucial asset class for the future. Connecting regional grids allows for energy sharing, improved dispatch, and lower costs for customers. Increased transmission capacity is essential to support the growing demand from data centers and facilitate the “speed to power” needed for the energy transition. Key challenges include securing rights-of-way and navigating NIMI (“Not In My Backyard”) opposition. The company advocates for federal permitting reform to streamline infrastructure development while protecting the environment. Undergrounding transmission lines is significantly more expensive (3-5x the cost of overhead lines) and presents challenges with electromagnetic radiation, though it is considered for new developments. High Voltage DC transmission lines are also being explored.

VII. Investor Perspective & Stock Performance

Excel Energy is positioned as an infrastructure owner and operator with a strong opportunity to capitalize on the growing demand for electricity. The company’s low electric prices (28% below the national average) and favorable geographic location are expected to drive disproportionate growth. The recent settlement of a long-standing wildfire liability case in Colorado has positively impacted the stock price. Bob Frenzel believes the market is not fully appreciating the company’s potential, particularly its ability to serve new customers and contribute to national security and cybersecurity.

Notable Quote:

• Bob Frenzel: “If you plotted our service territories over the wind map of the United States or the solar map of the United States, you’d see an incredible overlap.”
• Bob Frenzel: “The view through the windshield is better than the view through the rearview mirror.”

This detailed summary aims to capture the nuances and specific details presented in the interview, providing a comprehensive overview of Excel Energy’s strategy and outlook in the context of the rapidly evolving energy landscape.