By Alex Brown, Stateline.org
For the first time in decades, America needs to produce more electricity.
In many places, a sharp uptick in power demand has been driven by data centers, the industrial buildings that house huge banks of computer servers and support our increasingly digital society.
State lawmakers have long sought to attract such operations with generous tax breaks and incentives. But now, some are concerned that the infrastructure needed to add all those data centers to the electric grid will drive up residents’ utility bills. The growing use of artificial intelligence, which requires massive amounts of computing power, has added to that worry.
“We’re going to have tremendous stress from AI,” said New Jersey state Sen. Bob Smith, a Democrat who chairs the Environment and Energy Committee. “We have a crisis coming our way in electric rates. These outrageous increases are going to be put on the citizens. Why should they bear the rate increases?”
Smith has authored a bill that would require new AI data centers in New Jersey to arrange to supply their power from new, clean energy sources, if other states in the region enact similar measures.
The bill is among roughly a dozen proposals in state legislatures nationwide seeking to ensure that data centers don’t result in increased rates for other electric customers, according to the National Caucus of Environmental Legislators, a forum for state lawmakers. Smith and lawmakers in other states with clean energy targets also say the demand for AI could derail their climate goals.
Those goals are also under attack from President Donald Trump, who has directed Attorney General Pam Bondi to block enforcement of all state climate policies. Trump also issued orders seeking to boost coal production, in part to meet the energy demands from AI operations.
Tech companies note that their data centers are crucial for everything from credit card transactions to remote work to streaming Netflix. And the centers create tax revenue and jobs in the states that host them, the companies argue.
Data centers are just the first wave in a new era of increased electricity demand. Electric vehicles, a growing manufacturing sector and the electrification of household appliances are all expected to use more power in the years to come.
Industry leaders say it’s unfair to single out data centers, when more power will be needed for a variety of sectors.
“[Targeting data centers] risks creating unjustified distinctions amongst similar customers,” said Dan Diorio, senior director of state policy with the Data Center Coalition, a membership association for tech companies.
Ground zero: Virginia
Virginia hosts the world’s largest concentration of data centers, and is at the epicenter of debates over the industry’s future.
State lawmakers commissioned a study, published last year, to outline the industry’s impacts. Researchers found that data centers are currently paying their fair share for electricity. But the immense energy demands they’re forecasted to create in the coming years “will likely increase system costs for all customers, including non-data center customers,” the report concluded.
The study found that unconstrained demand largely from data centers would drive up Virginia’s energy usage 183% by 2040. With no new data centers, energy use would only grow 15%. In addition to the costs of building more power plants, the report said, utilities will also need to install more substations, transformers and distribution lines.
“They sounded an alarm that the steep increase — if this is unchecked — would quickly [raise consumers’ rates],” said state Del. Rip Sullivan, a Democrat who has been at the center of discussions over the industry’s future in Virginia.
Sullivan sponsored a bill that would have required data centers to meet energy efficiency standards to qualify for certain tax exemptions, but the measure did not advance this session. Virginia lawmakers passed a measure this session directing state regulators to determine whether utilities should create a special rate that certain customers such as data centers must pay.
Several other states are considering similar bills that aim to put data centers — or large electricity users more generally — in their own “rate class.” Proponents say that would prevent the costs of generating enough electricity for those centers from being spread to household customers.
Data center proponents have argued that regulators are best suited to set the rules, not lawmakers.
“The industry is committed to ensuring it continues to pay its full cost of service to ensure that other customers are protected from any unnecessary costs,” said Aaron Tinjum, vice president of energy for the Data Center Coalition.
Sullivan noted that data centers are critical to our digital society, and that the Virginia study found that the industry creates construction jobs and local tax revenue. But Virginia also aims to produce 100% of its electricity from sources without any carbon emissions by 2050 — a goal that will become more difficult if power demands skyrocket. The state urgently needs a comprehensive strategy to manage all those interests, Sullivan said.
‘You get good and bad’
For years, states have tried to lure data centers with tax incentives or exemptions. At least 36 states, both conservative and liberal, offer such incentives. But now, some of the states that have been most successful at attracting the industry are having second thoughts.
Georgia state Sen. Chuck Hufstetler, a Republican, noted that electric customers in the state have seen six rate increases in less than two years. Data centers, he said, use immense amounts of power and water, while creating few long-term jobs. On the other hand, he noted that they have proven to be a substantial source of property tax revenue.
“You get good and bad with the data centers, but I just want to make sure they pay their way,” he said.
Hufstetler authored a bill that would have barred regulators from raising rates because of the costs of serving data centers. While the bill did not pass this session, the Georgia Public Service Commission approved a new rule with similar protections, forcing data centers to cover those costs.
The move is a good start, Hufstetler said, but legislation is still needed because regulators can quickly roll back their own rules. Meanwhile, Georgia lawmakers passed a measure last year that would have paused the state’s sales tax exemption for data centers. Republican Gov. Brian Kemp vetoed the bill, arguing that an abrupt change would undermine companies’ planned investments in Georgia.
Consumer advocates say more states should rescind their incentives.
Many data centers don’t bring in enough tax revenue to cover their tax breaks, said Kasia Tarczynska, senior research analyst at Good Jobs First, a policy group that tracks government subsidies related to economic development.
“It’s not a winning program for state budgets,” she said.
Oregon has seen a rapid increase in data centers in the eastern part of the state, said state Rep. Pam Marsh, a Democrat.
“Data center growth is outstripping every other kind of conventional user category,” she said. “There’s lots of evidence that the demand of those data centers has already been shifted onto residential ratepayers.”
Marsh has sponsored a bill that would require data centers and other large energy users to be assigned to a separate rate class that accounts for the added costs of their power demands.
In a letter to Oregon lawmakers, Amazon Web Services — the computing subsidiary of the retail giant — said it has worked with utilities to ensure its costs aren’t being passed to other ratepayers. The company noted its commitments to purchase large amounts of renewable energy, and said major grid upgrades are needed to enable more clean power and the deployment of technologies like electric vehicles.
Amazon Web Services did not grant an interview request. Two other industry leaders, Google and OpenAI, did not respond to Stateline inquiries.
Utah enacted a law this year that allows “large load” customers such as data centers to craft separate contracts with utilities. It’s intended to ensure that household ratepayers don’t get hit with additional costs to power those facilities. Republican state Sen. Scott Sandall, who sponsored the bill, did not respond to a Stateline interview request.
“This new demand requires billions of dollars of capital investment,” said Tyson Slocum, energy program director at Public Citizen, a consumer advocacy nonprofit. “The normal model is you spread that investment cost across all consumers. That’s not reasonable here.”
Slocum said data center users have been shying away from previous commitments to use clean energy sources, at the same time Trump has pushed to increase fossil fuel production.
Some lawmakers have noted that many data centers are being built to meet forecasted demand from AI. They worry that overhyped projections could force utilities to build expensive infrastructure that never gets used.
Industry leaders say the build-out of data centers is driven by consumer demands and note that such facilities have made computing far more efficient.
They also argue that digital infrastructure is important for national security, ensuring that Americans’ data is not passing through overseas facilities with weak security. And they warn that companies may be wary of investing in states with legislation seen as disruptive.
“This is an industry that is trying to build out to meet unprecedented demand,” said Diorio, of the Data Center Coalition. “[State legislation] can send a market signal that there’s going to be friction in that market.”
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