Chevron-Microsoft Power Deal Sparks Concerns Over AI Competition Chokepoints

A recent deal between Microsoft and Chevron has significant implications for the future of AI competition. The two companies have signed a 20-year power purchase agreement, which will see Energy Forge One LLC, a wholly owned Chevron subsidiary, develop a co-located West Texas power facility known as Project Kilby that would provide dedicated electricity to a Microsoft-operated data center.

The project, called Kilby, aims to deliver 2.67 gigawatts of capacity through a phased, modular buildout, with most generation coming from large GE Vernova turbines and associated electrical infrastructure, along with more capacity from Solar Turbines, a wholly owned Caterpillar subsidiary. Microsoft says its associated Pecos, Texas, campus is a multibillion-dollar buildout expected to add approximately 2 gigawatts of global data center capacity over five to seven years to support AI and cloud demand.

According to Carl Shapiro, a University of California, Berkeley economist and former senior official in the DOJ Antitrust Division, vertical-merger analysis often turns on theories of input foreclosure and raising rivals' costs. Fiona Scott Morton, a Yale economist and former Deputy Assistant Attorney General for Economics in the DOJ Antitrust Division, has written about platform markets being prone to concentration due to scale economies, network effects, data advantages, switching frictions, and conduct that raises entry barriers.

The deal builds on prior concerns about AI competition chokepoints. Economists have identified different competitive risks as AI infrastructure becomes more vertically controlled, including input foreclosure and raising rivals' costs. Section 2 of the Sherman Act asks whether a firm's conduct tends to maintain or extend market power through exclusionary means rather than competition on the merits.