Legislators in states where the U.S. data center boom is about to kick into higher gear are considering bills that could force developers to pony up to connect their power-hungry loads to the grid.
Bills in Georgia, California and Virginia, for example, could place more costs of data center infrastructure on developers rather than being borne by ratepayers, addressing a concern that the new loads could raise utility costs. Others would establish new rules regarding how data centers can obtain power.
Even lawmakers in Texas — a market long known for its hands-off rules — are considering a bill that would raise costs for data centers and potentially force them to power off during a grid emergency.
It marks a shift after years of states offering incentives to lure big companies. As plans for artificial intelligence data centers with massive computing power proliferate, regulators are increasingly concerned about what they mean for electric reliability and cost as the country faces dramatic electricity growth for the first time in decades.
GOP Texas state Sen. Phil King, who introduced that state’s data center bill, said the tech industry’s unquenchable demand for power could pose a reliability risk for the state’s already-fragile main grid, the Electric Reliability Council of Texas (ERCOT).
“These large load customers’ demand for electricity is requiring ERCOT to plan for load growth at dramatically higher levels than experienced ever in the history of Texas and, frankly, ever in the history of the United States,” said King at a state Senate hearing Thursday. “While this load growth is a strain on the ERCOT grid, it is also an excellent opportunity for the state of Texas so long as we manage it properly.”
Texas regulators have said the ERCOT grid may need to double its power generation capacity by 2030 to meet booming demand. Nationally, a federally backed study found that data center demand could triple by 2028 and account for as much as 12 percent of the country’s power use.
The concerns aren’t just about meeting high demand. The costs of infrastructure to serve their load — even if developers are building on-site power generation — can be spread out across customers, driving up costs for ratepayers. Other regulators are concerned about whether the centers will power down when the grid is strained or whether their demand will take power plants off the grid.
Dan Diorio, senior director of state policy for the Data Center Coalition, said in an interview that the group is engaged across many states and is aligned with the general goal of reducing grid impacts.
“The data center industry is committed to paying its full cost of service,” said Diorio. “Residential ratepayers should not be subsidizing the power that we use. Good and sound ratemaking principles have served us well and will help to make sure the costs are allocated fairly.”
Texas’ reliability worries
Managing load is top of mind in Texas, where regulators and lawmakers are still reeling from the deadly blackouts during 2021’s Winter Storm Uri. Low power prices and a relatively easy permitting process have made the state a prime target for data centers and other large sources of demand, but King has said his bill S.B. 6 can maintain that growth without threatening a repeat of Uri.
The wide-ranging bill applies to all large loads, including manufacturers and cryptocurrency mines. It would set new minimum transmission fees for them and require that loads pulling certain amounts of power from existing generators get state approval and either replace it on the grid or agree to send power back to the grid when necessary.
Crucially, the bill would also set up a so-called “kill switch” for certain large facilities, allowing the state to power them down during grid emergencies. With the ERCOT grid increasingly strained during cold winter mornings and hot summer evenings, King said that he wanted to avoid a situation where there’s “a data center powered up while the neighborhood literally across the street is without power.”
DCC’s Diorio, testifying at the hearing Thursday, said the provision needed work and that cutting off data centers could threaten national security and data reliability.
The bill was labeled a priority item by Republican Lt. Gov. Dan Patrick, who leads the Senate, and committee leaders said they hope to advance it to the floor within weeks. Lawmakers are also considering other reliability bills to incentivize fossil fuel generation or raise fees on renewable energy.
Winston Skinner, an attorney at Vinson & Elkins who focuses on energy regulation, said that the bill, if enacted, could slow data center development a bit, but that most serious developers would not see it as a significant hurdle.
“If the load requests that ERCOT is projecting start to taper off a bit, maybe that’s a more realistic reflection of the loads that were coming on in the first place,” Skinner said. “The big tech companies that are well capitalized may see these as necessary hoops, while the more speculative loads might go away because they can’t meet the requirements.”
Jim Burke, the CEO of Texas-based independent power producer Vistra Corp., has cautioned that the legislation is “raising questions” and could cause some customers to rethink building in Texas. On the company’s earnings call last week, Burke said that data center customers — who Vistra hopes to partner with on new power deals — want “clarity” on provisions like the remote shutoff language.
Michael McNamara, chief executive officer of data center developer Lancium, testified Thursday that the bill was balanced, although he raised concerns with the “kill switch” provision and generation requirements. Lancium is one of the companies working on the $500 billion Stargate project with OpenAI, Oracle and SoftBank, with a preliminary center opening in Abilene, Texas, and other sites likely in the state.
“Texas is absolutely the best place to build, and we will build here for decades if there is clarity,” he said.
Making data centers ‘pay their share’
A bill moving through the Georgia Senate would prohibit electric suppliers — notably the state’s largest utility, Georgia Power — from subsidizing large data centers with existing customers.
Senate Bill 34, sponsored by Republican state Sen. Chuck Hufstetler advanced by an 8-5 vote from the Senate Committee on Regulated Industries and Utilities on Tuesday.
Partly fueled by state-approved tax breaks, the Atlanta area is among the nation’s hottest markets for data centers, according to commercial real estate firm CBRE. Hufstetler of Rome, Georgia, has seen three data centers open in his district northwest of Atlanta, including a $1 billion Microsoft project.
In hearings this month, Hufstetler made clear he supports the industry’s growth but insists that tech companies should “pay their share of the resources they require.”
Hufstetler filed S.B. 34 just days after the Georgia Public Service Commission adopted a rule aimed at helping ensure data center growth doesn’t burden existing Georgia Power customers — especially individuals and small businesses that have seen a steady increase in electric rates in the past two years.
The PSC rule was a good first step, he said, but further consumer protections are needed.
Bobby Baker, an energy lawyer and former Georgia PSC member, agreed and said the PSC rule is “full of loopholes that you could drive a truck through.” He said terms established by the rule are to be used at the utility’s discretion and could be eliminated within 30 days by a vote of three commission members.
Georgia Power and the Data Center Coalition pushed back on the need for the bill. Lobbyists for the utility, a unit of Atlanta-based Southern Co., have in particular sought to persuade lawmakers that the bill is unnecessary.
Aaron Mitchell, vice president of pricing and planning at Georgia Power, disputed that “flexibility” in the PSC’s data center rule is insufficient to protect consumers.
Mitchell testified that electricity demand growth helps existing customers by putting downward pressure on electric rates. Requiring data centers to pay for any needed generation and transmission would mean they get 100 percent of the benefits of those assets, depriving other ratepayers of any benefits.
“Georgia Power has made a commitment to put downward pressure on rates because we’re growing our system,” he said.
Other state bills
The tech industry faces a flurry of other legislation, especially in some of its largest markets. In Virginia — which hosts the largest concentration of data centers in the world — lawmakers have proposed language that would limit any construction or infrastructure costs from going to consumers. Another bill there would offer tax credits if facilities meet energy efficiency standards.
Last year, the state failed to move any of the 17 data center bills that were introduced, and already one chamber has tabled a bill that would have increased state oversight of large electrical facilities.
In Utah, the state Senate passed a bill, S.B. 132, that would allow the state’s largest utility to individually contract with new large load customers rather than include them in general rate cases and pass their new costs to ratepayers. The bill also restricts what power sources data centers can use, requiring that all wind and solar generation be backed with sufficient battery storage to service the facility.
Democratic state Sen. Steve Padilla of California has introduced a pair of bills that he said were designed to bring data centers online in a way that would facilitate efforts to decarbonize the grid and upgrade infrastructure to reduce fire risk. One bill would create a specialized rate structure for infrastructure related to data centers to reduce overall costs, while another would offer incentives for centers that use clean energy and create jobs.
“We’re happy to have technology here, but there’s a lot of demand proliferating around the state,” Padilla said. “What we want to create is a system that prevents the cost shift to the regular ratepayers. California ratepayers shouldn’t have this burden placed on them.”
