Contribution in Aid of Construction (CIAC) and Line Extensions for Data Centers

Utilities normally pay for the wires and equipment that serve customers, then recover the investment through rates over decades. That works when a new customer’s bills will cover the cost of serving it. When they will not, other ratepayers would carry the gap. Contribution in aid of construction is the mechanism that moves that gap back to the customer who caused it: the customer pays, the utility builds and usually owns the facilities.

The idea is old and was built for line extensions to homes, subdivisions and businesses. A 1989 California Public Utilities Commission resolution on a Pacific Gas and Electric extension describes the logic: when cost exceeds five times annual revenue, the facility would burden other ratepayers if the utility paid for it, so the applicant advanced the difference between total cost and five times estimated annual net revenue.¹ That advance was refundable, without interest, as new permanent loads connected to the same facilities.¹

Other utilities use a discounted cash flow test. Unitil’s line extension rules discount expected revenue over ten years for commercial and industrial service and twenty years for residential; if the net present value is zero or positive no contribution is required, and if it is negative the excess cost is due as CIAC from the initial customer.² If more customers connect within five years, Unitil recomputes the contribution and may refund some or all of it.²

The practical question is where the line falls between facilities that serve only the campus and shared grid upgrades. Facilities that serve only one customer, such as the tap, the radial line to the site, a dedicated substation or switchyard bays, are the usual targets for CIAC. Shared network upgrades have traditionally been rolled into rates, a split our guide to transmission upgrades and cost allocation covers in detail.

Newer rules push that line outward. Pennsylvania’s model large-load tariff allocates the cost of a network improvement to the large-load customer if it would not have been needed but for that customer’s interconnection, regardless of whether others may benefit, and assesses it as CIAC.³ The exception is upgrades already in a commission-approved long-term infrastructure plan.³ In Texas, the PUCT’s large-load interconnection rule under Senate Bill 6, adopted on September 18, 2026, standardizes capital contributions and financial security for ERCOT loads of 75 MW or more.¹¹

Georgia took a related approach for loads over 100 MW. The Georgia Public Service Commission’s January 2025 rule lets Georgia Power bill those customers for costs incurred for upstream generation, transmission and distribution as construction of the data center progresses.¹² Very large single projects can go further still. In Louisiana, the arrangement approved in August 2025 for Meta’s Richland Parish campus has Meta funding most costs for 15 years, including 100% of the new power plant expenses, though not the transmission line.¹³

Whether the customer or the utility owns the substation changes the CIAC question entirely. Our comparison of utility-owned and customer-owned substations walks through that trade-off.

CIAC does not always mean a single check before construction. Tariffs offer several routes.

• Up-front contribution: the customer pays the estimated cost, often in installments tied to procurement and construction, with a true-up to actual cost at the end.
• Monthly facilities charge: the utility funds the facilities and bills a fixed monthly percentage of installed cost. Under one option of Entergy New Orleans’s Additional Facilities Charge, that is a net 1.120% per month of installed cost.⁷
• Refundable advance: the contribution is returned in part as other customers connect to the same facilities, as in the older PG&E and Unitil rules.¹²

A monthly charge of about 1.12% of installed cost adds up to roughly 13.4% a year, so over a long contract the customer pays for the facilities several times over. It can still make sense when capital is scarce early in a project, but the comparison should be run as a present value, not on headline cost. Refundable advances rarely help a data center, because few other customers are likely to connect to a dedicated campus line within the refund window.

The gross-up surprises many first-time buyers of utility service. The Tax Reform Act of 1986 made customer contributions in aid of construction taxable income to utilities as of January 1, 1987, and utilities began collecting the added tax from the contributor.⁴ The 2017 Tax Cuts and Jobs Act revised section 118(b) again, adding a provision that removes nontaxable treatment for contributions from governmental entities and civic groups.⁵ That matters when a county, economic development authority or state program helps pay for utility extensions to a site.

Utilities call the added charge by different names. PG&E calls it the Income Tax Component of Contributions (ITCC) and, under its approved method, collects it from the contributor rather than from ratepayers.⁵ The factor is set so the utility is made whole after paying tax on both the contribution and the gross-up itself, which is why it exceeds the nominal tax rate. Factors vary widely with tax rates and depreciation treatment. After the 2017 tax law, Pennsylvania American Water said its gross-up was approximately 40% of the value of the contributed property, charged to the developer.⁶ State income tax, where it applies, pushes the factor higher than a federal-only calculation.

There is a narrow federal safe harbor, but it is written for generators, not loads. IRS Notice 2016-36 treats the transfer of an intertie from a generation, cogeneration or energy storage facility to a regulated utility as a nontaxable contribution to capital rather than CIAC, if the intertie cost stays out of the utility’s rate base and the generator capitalizes it as an intangible recovered over 20 years.¹⁴ It applies to transfers on or after June 20, 2016.¹⁴ Projects pairing a campus with co-located generation should ask tax counsel which payments fall on which side of that line.

CIAC covers facilities built for the customer. Minimum bills cover the risk that shared generation and transmission built for a forecast load never get paid for. RMI’s review of large-load tariffs found three common ways to set the floor: a percentage of contract capacity (often 75–90%), the customer’s historical peak, or a fixed floor, with many tariffs charging whichever is greater.¹⁵

• AEP Ohio: the tariff approved on July 9, 2025, requires new data centers over 25 MW to pay for at least 85% of subscribed demand for up to 12 years, including a four-year ramp.⁸
• Dominion Energy Virginia: the State Corporation Commission’s November 2025 order created a GS-5 class for customers of 25 MW or more, effective January 1, 2027, with minimums of 85% of contracted distribution and transmission demand and 60% of generation demand.⁹
• Pennsylvania model tariff: billing demand of at least 80% of contracted capacity, a minimum initial term of five years after the ramp, and 48 months’ notice to terminate or sharply reduce capacity.¹⁶

Minimum bills and CIAC interact. A utility that collects CIAC for the sole-use facilities may still require a high minimum bill to protect its investment in shared upgrades. Our guide to large-load tariffs and electric service agreements covers how contract demand and minimum bills are set along the ramp schedule.

Collateral is the other half of the cost-protection package. RMI found collateral requirements in 37 of the tariffs it reviewed, intended to cover unpaid bills, exit fees or penalties if a customer defaults or leaves early.¹⁵ The amounts are often tied to a formula rather than set case by case.

• Pennsylvania model tariff: financial security from the customer or its financial sponsor must fully cover network improvement and interconnection facility costs, and may be reduced as construction and load-ramp milestones are met.³
• Consumers Energy (Michigan): the exit fee equals the minimum monthly bill times the months remaining in the agreement, and default collateral equals half the exit fee, declining over the term.¹⁰
• AEP Ohio: applicants must show they are financially viable and able to meet the minimum demand terms, and an exit fee applies if a project is canceled or cannot meet its obligations.⁸
• Texas (adopted September 2026): developers post $50,000 per MW of requested capacity as financial security before interconnection studies begin, alongside a flat $100,000 study fee.¹¹

Collateral is commonly posted as a letter of credit, cash or parent-company credit support. For a developer without a signed tenant, these requirements can tie up more capital than the CIAC itself, and they come due earlier. The timing belongs in the project schedule alongside the interconnection studies, because utilities often will not start long-lead procurement until the money or security is in place.

CIAC, gross-up and collateral can make two sites with similar energy rates very different in capital required before first power. A short list of questions narrows the range early.

1. 01Which tariff or rule governs: a general line extension policy, a large-load tariff, or a negotiated special contract?
2. 02How does the utility split sole-use facilities from network upgrades, and does a “but for” test apply?
3. 03Is there a revenue allowance or credit, and is any contribution refundable?
4. 04What is the tax gross-up factor, and does it include state tax?
5. 05Can dedicated facilities be paid monthly instead, and at what percentage of installed cost?
6. 06What minimum bill, term, exit fee and collateral apply, and when is each due?
7. 07If public money is helping pay for extensions, has the tax effect on the contributor been addressed?

Answers depend on studies, so expect ranges at first. Pair this checklist with a read of the utility’s will-serve letter and the large-load interconnection process. Confirm figures with the utility and with counsel before relying on them. BlackForge folds these costs into site comparisons; if you want a second look at a parcel, get a site reviewed.