Memphis utility company Memphis Light Gas and Water (MLGW) has hit back at claims it is subsidizing Elon Musk’s xAI to build a data center in the city.
Non-profit environmental advocacy group the Southern Environmental Law Center (SELC) raised a series of concerns about the deal struck by MLGW with xAI in a letter published last week. The letter, sent to Tennesee state power grid operator TVA, called for a review of plans for the data center due to the “harmful consequences” it could have on residents. TVA must approve a request from xAI for an additional 150MW electricity to be directed to the site to power the data center.
The first phase of the project, which is housed in a former Electrolux factory in southwest Memphis, is already up and running. Musk has dubbed it the “gigafactory of compute” and says it will eventually be home to the world's most powerful supercomputer.
In its own letter to the TVA directors, MLGW said it “treated xAI like all similarly situated customers” and followed all processes as required by state and federal law.
The original SELC letter claimed that “ordinary MLGW ratepayers” would be “subsidizing millions of dollars in infrastructure investments required to serve xAI, both directly and through bill credits to xAI,” because the power company is making a contribution towards upgrades to the grid which are needed to supply the required amount of energy to the facility.
It also raised concerns that adding such a facility to an already-stretched power grid could reduce reliability for residents and existing businesses.
Currently, the site has 8MW of power available, and MLGW is set to upgrade this capacity to 50MW in a project that will cost taxpayers $760,000. Meanwhile, xAI is pledging to spend $24 million on a new substation providing an additional 150MW. Once this is complete, the firm will receive monthly rebates from the utility company until its costs are recouped and MLGW will then take ownership of the substation.
In its letter to the TVA, MLGW defended this move, and said: “The cost associated with the infrastructure improvements will not be borne by the rate payers.”
It went on to say: “xAI has elected to build the substation and MLGW will take ownership of its portion of the asset upon completion. The cost of receiving MLGW's portion of the substation will be offset by the additional revenue we will receive from xAI's electric usage.
“This is consistent with how we treat other customers needing electric expansion.”
MLGW said it does recognize the “enormity of the request” from xAI.
The letter said: “In this era in which the need and demand for electricity is growing exponentially, we do appreciate the community's concerns over whether this will negatively impact the electrical grid.
“Therefore, MLGW strongly encourages the TVA board to condition approval of 150MW of power on xAI contractually agreeing to take measures to reduce stress on the grid, especially during peak periods or extreme weather conditions.”
It added that xAI’s presence in Memphis could help boost infrastructure in the city, helping to fund the construction of a “greywater facility” providing recycled water for use by the company as well as other major local employers such as Nucor Steel. Large-scale battery storage facilities could also be constructed to help boost grid resilience.
The xAI project has been welcomed by many in Memphis, but city councilors have complained of being left in the dark about the development.
It is claimed the data center will be home to up to 100,000 Nvidia H100 GPUs for training and running the next generation of xAI’s large language model, Grok, with a second cluster of 300,000 B100 GPUs scheduled to come online next year.
