Who pays for xAI’s power?

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Who pays for xAI's power? A utility executive at a council table mid-answer, a presentation screen behind him headed Powering Tomorrow with a diagram running generation to city, council members seen from behind.

I had some questions for MLGW about xAI so I filed four public records requests with them in July. I asked how xAI’s power hookup works, what its water contract says, what it’s being billed, and who signed the deals. Each one came back with the same we’re-working-on-it reply – no records, no date.

The xAI files

Every essay in this series is pinned to a question on the board at rachelandthecity.com/the-xai-files.

Then on Sept 1st, their CEO sat in front of a Memphis City Council committee and answered many of my questions.

Doug McGowen runs MLGW – the utility that sells Memphis its power, gas, and water. Councilman Ford asked him to come up and explain how a data center actually gets hooked up here.

It seems like that’s a question that the council probably should have asked at least a year ago – the Shelby County Commission voted 8 to 1 in May 2025 asking MLGW and TVA for routine updates on exactly this. MLGW did brief the council’s MLGW committee on serving xAI back in July 2024 – but I digress.

Here’s what he said.

How a data center gets power in Memphis:

A data center can’t just plug in to the grid. When a company wants that much power, it files a request with MLGW, and the request goes into a line behind everyone else’s. The line is long – “sometimes it’s up to a year long before they can even get to the study,” McGowen said.

The study he means is an engineering study of what that much new demand would do to the grid, the wires and substations everybody else’s power runs through. If the study finds a problem, a second study prices the fix, and the company pays for it. Anything big enough goes to the TVA board too. TVA is the federal power company that makes the electricity MLGW sells, so a very large customer needs TVA’s sign-off as well as MLGW’s.

McGowen also said that MLGW serves sixteen data centers today, and they range from under one megawatt up to 150. xAI’s first site alone sits at the top of that range. He named them – AT&T, AutoZone, FedEx, the IRS, Nike, St. Jude, Wright Medical, and then CTC, xAI, and 5C. CTC is the company name on xAI’s Memphis records.

That may seem like a lot of data centers – but most of them are small compared to xAI, with nowhere near its power draw. By the number of buildings, Memphis actually trails Nashville, Louisville, and Kansas City. By power, it’s a different story – one industry directory now ranks Memphis the 18th biggest data center market in the country, and almost all of that is xAI.

Back to McGowen’s testimony.

Where xAI’s power stands right now:

xAI’s first site sits in Pidgeon Industrial Park in southwest Memphis – that’s Colossus 1. Before it had grid power, TVA’s own records describe it running on “limited MLGW power and xAI gas turbines.”

McGowen says that when the company asked MLGW for power back in 2024, it asked for 300 megawatts – though MLGW’s own 2024 slides show a 150 megawatt first ask, and the doubling to 300 came later that year. It’s been getting 150 of that from the grid, and McGowen says the temporary turbines came off when that first 150 came on.

The second 150 “was just approved,” comes on by the end of the year, and “there are no further approvals required of that.” He says it replaces the rest of the temporary turbines. But I still am not sure how much power the whole site uses – so whether 300 covers it, or the permitted turbines keep running alongside it, is still a question.

TVA’s board voted on that second 150 in February without naming the customer in public, but it’s probably xAI. I’ve asked TVA for the memo behind the vote.

So how is this affecting Memphians?

This is the question people ask most, so I’ll quote him: “there have been no rates changed for residential, commercial or industrial class customers because of data centers in Memphis and Shelby County.”

If your bill’s been high this summer, I get it – mine has been too. But before anybody blames the data centers for that, look at the weather. This summer heat has been awful. I’ve been running the air nonstop trying to keep it bearable for me and my two dogs, and I keep checking when it’s going to break.

Back to the grid.

The way he described it, a new load has to pay for every grid upgrade up front, before it gets served. It pays a higher rate than other commercial and industrial customers, McGowen said, whether it uses the power it reserved or not – though TVA’s own memo keeps the new data center rate level with what they pay now for the first year. And for new data center load above the first 5 megawatts – whether TVA or MLGW serves it – the company writes TVA a check before its power contract takes effect.

Starting this October that check is $1.52 million per megawatt. So, by McGowen’s math, a new 100 megawatt data center pays $152 million up front, “to offset the cost of generation so that residents don’t pay that.” TVA’s rule skips the first 5 megawatts, so it’s closer to $145 million. So, TVA has to build power plants to feed these things, and the charge is meant to make the data center pay for that plant instead of putting it on everybody’s bill. TVA’s own records also say what happens without the charge: about a 2 percent rate hike for everybody, for every 1,000 megawatts of data centers that come online.

But there’s a cutoff, and it matters for xAI. TVA treats any load its board approved before June 1st of this year as existing, and existing load is exempt from the charge. The first half was approved in 2024. In February, TVA’s board approved another expansion over 100 megawatts for a customer it didn’t name – if that was xAI’s second half, both came before that date, so under TVA’s own rule, xAI wouldn’t owe that check on what it already has. The charge hits the next company in line, and I’ll get to that one.

So, what happens when the grid peaks from use?

Every data center has to agree to be cut back when power runs short – on a hot afternoon, say, when everybody’s air conditioning is running. There have been fifteen of those cut-back orders so far this year, and “they have complied with all of them.” McGowen described a data center going from 150 megawatts down to 5 so there’s power for everyone else.

I saw a lot of people posting about xAI having power last week when a storm with 70 mph winds knocked out more than 140,000 MLGW customers – over a quarter of everyone MLGW serves. But that’s people conflating two different issues. MLGW says its storm order was hospitals, water and sewer plants, then the circuits with the most customers – xAI isn’t on that list. Trees and lines were down all over the county, and it took MLGW six days to get everybody back on.

TVA’s 2024 approval of xAI’s first 150 megawatts was “contingent on demand response.” That’s utility-speak for exactly this deal – you get the power as long as you agree to give it back when we ask.

And here’s what he said about the water.

When MLGW agreed to serve the Pidgeon site, it put a cap on how much water xAI could take: 1.28 million gallons a day. The last count he gave was about 820,000 gallons a day. That didn’t put xAI in the top 20 water users in 2025, but it’s growing, and he expects it to be number five or seven by the end of this year.

But the aquifer that MLGW gets its water from has trillions of gallons. Running out of water really isn’t the issue. Now, there are ways it can become contaminated – and I’ve written about those.

As for the grey water plant xAI is building – his guess is it won’t be ready until 2028, and that’s if building restarts on January 1st, 2027 like he says. The Tulane site – Colossus 2, the second one – recycles its own cooling water, he said, and only takes regular tap water from MLGW.

Councilman Canale asked about the gas turbines, the ones the fight over the air has been about. McGowen said he doesn’t know the exact number running. What he did say is that the second 150 megawatts “is in lieu of any temporary generation” – that means instead of the turbines.

But he means the trucked-in ones. The permanent ones the county permitted in 2025 stay, as backup – his word, not the permit’s. When the first 150 came on from the grid, “those temporary generators were moved off.” When the second 150 comes on this fall, “the rest of those temporary generators will move off.”

That’s his forecast, and the county’s permit file is the record of what’s actually out there. But it’s the first time I’ve heard anyone with a hand on the switch tie the turbines to a date.

What’s coming:

Two more data centers have asked MLGW for power, 350 megawatts between them. One is 5C adding about 50. The other is a 300 megawatt request “again in an industrial park,” and he didn’t name the company. That one has to go to the TVA board, and the company has to decide whether to pay TVA $450 million up front – which is roughly what the new charge comes to on 300 megawatts. Nothing on either before the first quarter of 2027.

There’s one more unnamed deal worth knowing about, and it’s on a different pipe. On August 20th, TVA’s board approved another customer, one TVA will serve directly with no MLGW in between, over 100 megawatts, starting as early as November. The same day, the Daily Memphian reported that SpaceX’s AI division had asked TVA to supply the Colossus II campus directly. That August vote came after TVA’s June cutoff, so whoever that customer is would face the new charge, not the exemption.

I have not talked much about the Tulane Road data center in this essay because it’s a whole other animal – but I assume that if that new deal is for them – it’s to help get them off running on their own temporary turbines.

McGowen’s own bottom line: “In the next six months, there is no data center that will just pop up anywhere. It can’t happen.” And MLGW says it will propose a data center water rate, plus a capacity fee for access to the water system, with its budget this year.

Allan Wade is the council’s lawyer, and later that afternoon, on the same recording, he answered the question under all of it – what the council can actually do about any of this: “the main thing that we control is siting. That is a property zoning issue. We don’t control air control, water, water consumption, electric consumption, all the things that everybody’s hanging their hats on.”

Stay tuned – I am trying to put together an infographic for exactly who is in charge of what.

The map is up, September 7th, 2026: Who oversees xAI in Memphis and Southaven? Ten pieces of a data center, three columns of who has the job, every cell from the record.

And I am going to continue to pressure MLGW to actually give me all of the records I’ve requested.

If you like facts-first info on all this, consider leaving a tip on Venmo or PayPal – this stuff takes a lot of time to put together. And check out everything I’ve written with citations and receipts at the xAI Files.

Sources

Correction, September 27th, 2026: This essay first said the 15 turbines the county permitted stay. The company told the county that only 12 of the 15 were ever installed.

Further correction, September 27th, 2026: This essay said TVA’s up-front charge applies to anything over 100 megawatts that TVA serves – TVA’s rule charges new data center load above the first 5 megawatts, whether TVA or MLGW serves it, so a new 100 megawatt center pays closer to $145 million than $152 million. It said data centers pay a higher rate than everyone else – McGowen said higher than other commercial and industrial customers, and TVA keeps the new rate level with today’s for the first year. And it said the city council didn’t ask until now – MLGW briefed the council’s MLGW committee in July 2024.

Update, September 27th, 2026: A few lines now say who says so, including McGowen’s 300 megawatt figure and MLGW’s storm restoration order, and the line about xAI’s second 150 megawatts now says TVA’s February approval didn’t name the customer.

Everything I have written about AI is in one place at rachelandthecity.com/the-ai-files.