Part 4
By Christopher Stern, Contributing Writer
It was almost an aside during Rappahannock Electric Cooperative’s annual meeting last month when CEO John Hewa announced the launch of Hyperscale Generation Services, a first step to building its own power supply.
REC currently buys all the electricity it distributes, but data centers are coming. Building power plants is the latest indicator that the utility is transforming from a mostly rural co-op into one of the biggest power companies in the United States. That brings huge challenges for Hewa as he struggles to balance the needs of his legacy customer base while preparing for massive data centers backed by the biggest tech companies in the world.
CEO John Hewa is faced with the possibility of his co-op needing to distribute enough electricity to power New York, Chicago and Los Angeles.
If all the data centers planned for REC’s territory are completed, the co-op, which has fewer than 170,000 customers, will need enough capacity to power the combined populations of New York, Los Angeles and Chicago.
Hewa was short on details when he announced the launch of HGS, noting only that the project was in its early stages and would explore “clean energy or some type of batteries.” In September 2025, Fauquier County Supervisors approved a Dominion Energy plan to build a large battery storage facility in Remington. That facility will allow data centers to charge batteries during off-peak hours for use during the day when electricity is more expensive.
It is not clear what Hewa was referring to when he said “clean energy.” But Dominion often cites its nuclear plants as a source of clean energy and is exploring development of a nuclear plant with Amazon. Nuclear power is generally considered clean because it doesn’t produce greenhouse gases or air pollution.
In response to a question from Piedmont Journalism Foundation, REC did not rule out nuclear power. Hyperscale Generation Services “will explore all power supply options that may be of interest to the large energy users served by REC,” wrote spokeswoman Casey Hollins.
A sudden tidal wave
For decades Rappahannock Electric Cooperative was a reflection of its mostly rural territory, adding residential and commercial customers as the region steadily grew. Then, in early 2023, a sudden and unexpected tidal wave of demand from data centers changed everything.
“We did not see small, incremental load requests–we saw hyperscale, or potentially hyperscale, projects coming to potential fruition,” said Hewa in an interview at REC’s Fredericksburg headquarters. He would not say how many data centers wanted to come online, but according to datacentermap.com more than 40 are targeted for the Fredericksburg area, part of which is in REC territory.
The surge was part of the global data center boom kicked off by the tech industry’s rush to launch artificial intelligence businesses.
Like other power companies besieged by data center power demand, REC is trying to find ways to meet the exponential growth while living up to traditional tenets of affordability, reliability and sustainability. That’s a struggle because data centers’ power needs are driving up monthly bills, consumers face looming brownouts, and the lifespans of carbon-burning coal and gas plants are being extended.
Power companies say they need more energy supply options because there won’t be enough electricity to go around once the new data centers get up and running.
”There are going to be brownouts,” said Christopher Shipe, chairman of REC’s board of directors. “I hate to get over the top about this, but I've told all my friends and family, ‘Buy a generator.’ I've got one.”
The prospect of brownouts is not welcome news to Michelle Mckinney, a REC member in Flint Hill who works from home. “If your power is always going out or you're always having problems, that doesn't really help in your yearly reviews,” she said. And she would have to make up any power-related down time. “You will just have to work later or you're going to have to work on the weekends. So it's just stressful.”
According to a recent U.S. Department of Energy report, Virginia will experience between 100 to 430 hours of blackouts due to the growing demands on the current power grid.
There are several factors leading to data center development in REC’s territory, which stretches from west of Washington, D.C., to the outskirts of Richmond. Developers are attracted to the rural region’s large land parcels and access to transmission corridors, Hewa said. The area has become more attractive as room gets tight in nearby Loudoun County, the jurisdiction with more data centers than any other in the world. Initially, companies like Amazon, Microsoft and Facebook were attracted to Ashburn because its fiber optic capacity allowed for the fastest possible connections to the Internet. AI-focused data centers don’t need to be as responsive as some other applications, allowing them to be built farther from the Ashburn epicenter.
Looming financial risk
REC faces another huge challenge as data centers descend: They consume so much electricity they present a financial risk to its co-operative business structure. REC estimates that it will need about 20 gigawatts of capacity to serve the data centers planned for its territory. By rule of thumb, a gigawatt can power about 750,000 households. New York City uses about 5.5 gigawatts of electricity on a daily basis.
Every co-op member is an owner of the utility, which means they also share the risk if another member defaults or falls behind on payments. That worked fine for 80 years – no single customer was big enough to threaten the co-op’s financial health.
But one hyperscale data center customer’s weekly electricity bill could hit $50 million a week, according to Hewa. REC spent an average of just $6.5 million a week to buy electricity last year. If a data center were even late on a payment, it could take down the co-op, says Hewa.
Hewa, who has a doctorate in engineering and the demeanor of a cerebral basketball coach, has spent the last year raising red flags about the financial risk. “I simply do not think it is right for the other members, such as residential [customers] to have to backstop a Virginia-based data center operating with global reach,” he testified in December to the State Corporation Commission, which regulates Virginia’s utilities.
A report commissioned by the Virginia legislature also noted the risk.
“If a data center customer delayed, disputed, or failed to pay an energy generation bill and the co-op was unable to recoup these costs from the customer, they would ultimately have to be paid by all other co-op members. A large enough bill could potentially result in a co-op defaulting and going bankrupt,” the Joint Legislative Audit and Review Commission stated in the report.
Despite the financial risk, the threats to reliability, Hewa has no intention of turning away new business. “We believe that we have an obligation to serve,” he said.
To mitigate the risk, Hewa launched Hyperscale Energy Services, a REC division dedicated to serving large data centers. Each data center will be treated as a separate affiliate -- walled off financially from the legacy co-operative members. The goal is to financially insulate his regular residential customers from the financial risk of the data centers. An added benefit for the data centers is that they will have financial protection from each other.
In addition, REC will buy electricity for the data centers directly from PJM, the regional grid operator that distributes electricity to several states, including Virginia. In contrast, REC secures electricity for its regular customers from Old Dominion Electric Cooperative, made up of 11 cooperatives in Virginia, Maryland and Delaware.
Hewa’s affiliate model was not allowed until this year when he successfully lobbied the Virginia legislature to loosen constraints on the way co-ops do business.
Sen. Creigh Deeds (D-Charlottesville) authored the legislation, which he says mitigates the “huge risk” data centers represent for co-ops. Companion legislation was introduced in the House by Del. Mark Sickles (D-Fairfax). Virginia is home to about 13 electric co-ops.
“I’m hearing from co-ops in general because data centers are not just coming to Rappahannock’s territory,” Deeds said. “There are planned data centers spotted throughout Virginia and a lot in rural co-op territory.”
For data centers already under construction, REC is requiring that they pay in advance for new infrastructure, including transformers and substations. A single transformer can cost more than $20 million and a data center campus often needs several, according to Hewa. A substation can cost as much as $100 million. Those are not costs that Hewa believes his regular customers should have to carry.
Even under the new affiliate structure, Hewa cautions that there is only so much a utility can do to prepare for the price volatility that regularly roils the energy marketplace. During his testimony before the SCC, he pointed to winter storm Elliott in 2022, which sent electricity rates up 400 percent. Hyperscale Energy Services is designed to be a breaker that prevents financial catastrophe. Even with those protections in place, Hewa acknowledges that he can’t promise that co-op members are fully protected.
“We're doing everything possible to safeguard against the risks that are associated with serving large loads,” said Hewa. “That's the best we can do at this point.”
A Project by the Fauquier Times and Prince William Times
Designed by GoodPoint