Alex Brown, stateline.org
For the first time in decades, America needs to produce more electricity.
In many places, the rapid rise in electricity demand has been driven by data centres, an industrial building that houses huge banks of computer servers and increasingly supports a digital society.
State lawmakers have long sought to attract such operations with generous tax credits and incentives. But now, some are concerned that the infrastructure needed to add all these data centers to the electric grid will push up residents’ utility bills. It added to that concern as the increasing use of artificial intelligence, which requires a large amount of computing power.
“I’m going to feel a lot of stress from AI,” said New Jersey Sen. Bob Smith, a Democrat who chairs the Environment and Energy Committee. “We are in a crisis with electricity bills. These outrageous increases will be placed on the citizens. Why should they bear the rate rise?”
Smith has written a bill that requires new AI data centers in New Jersey to arrange to provide power from new clean energy sources if other states in the area enact similar measures.
According to National Party Members of Environmental Lawmakers, a forum for state lawmakers, the bill is one of around 12 proposals in state legislatures across the country to ensure data centers do not lead to an increase in rates for other electrical customers. Smith and lawmakers from other states with clean energy targets also say the demand for AI could derail climate targets.
These goals have also been attacked by President Donald Trump, who directed Attorney General Pam Bondy to block the enforcement of climate policies in all states. Trump has also issued an order calling for a boost to coal production to meet energy demand from AI businesses.
Tech companies are noting that data centers are important to everything from credit card transactions to remote work to streaming Netflix. And businesses argue that the centre will create tax revenue and jobs in the states that host them.
Data centers are just the first wave of a new era of increasing electricity demand. Electric vehicles, the growing manufacturing sector, and electrification of home appliances are all expected to use more electricity in the coming years.
Industry leaders say it’s unfair to have a single data center if more power is needed for different sectors.
“(data center targets) risk creating unfair distinctions among similar customers,” said Dan Diorio, senior director of state policy at the Data Centers Union, a member association of high-tech companies.
Ground Zero: Virginia
Virginia hosts the world’s largest focused data center and is at the epicenter of debate over the future of the industry.
State lawmakers commissioned a study published last year to outline the industry’s impact. Researchers found that data centers are currently paying a fair share of electricity. However, the immeasurable energy demand they are projected to create in the coming years “is likely to increase system costs for all customers, including non-DATA centre customers,” the report concluded.
The study found that there is primarily no demand from data centers driving Virginia’s 183% energy usage by 2040. With no new data centers, energy usage only increases by 15%. The report said in addition to the construction costs of more power plants, the utility would need to install more substations, transformers and distribution lines.
“We’re a keen surge in the future,” said Democrat Lip Sullivan, who was at the heart of the debate over the future of Virginia’s industry.
Sullivan sponsored a bill that called for data centres to meet energy efficiency standards to qualify for certain tax exemptions, but the measure did not advance this session. Virginia lawmakers passed measures in the session that directed state regulators to determine whether the utility should create a special rate that certain customers, such as data centers, must pay.
Several other states are considering similar invoices aimed at placing data centers or large power users in their own “rate class.” Advocates say that spreading these centres to household customers will hinder the cost of generating enough electricity.
Data center supporters argue that regulators are best suited to setting rules rather than lawmakers.
“The industry is committed to ensuring that other customers are protected from unnecessary costs, paying for the full amount of their services,” said Aaron Tinjum, vice president of energy at Data Center Coalition.
Sullivan said data centers are important to our digital society, and a Virginia study found that the industry generates construction employment and local tax revenue. However, Virginia also aims to produce 100% of its electricity from its power sources without carbon emissions by 2050. This is a goal that can be difficult if electricity rises sharply. The state urgently needs a comprehensive strategy to manage all of these benefits, Sullivan said.
“You’re good and bad.”
For years, states have tried to direct 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 are most successful at attracting the industry are rethinking.
Georgia Sen. Chuck Hofstetler, a Republican, noted that state electricity customers saw six rate increases within two years. He said data centers produce little long-term work while using huge amounts of electricity and water. Meanwhile, he noted that they have proven to be a substantial source of property tax revenue.
“You’re good or bad at data centers, but I just want to make sure they pay their way,” he said.
Hufstetler has written a bill that prohibits regulators from increasing fees due to the costs of providing services to data centers. The bill did not pass this session, but the Georgia Public Service Commission approved new rules with similar protections and forced data centers to cover those costs.
Hufstetler said the move is a good start, but the law is needed as regulators can quickly roll back their own rules. Meanwhile, Georgia lawmakers passed a measure that would have suspended sales tax exemptions for state data centers last year. Republican Gov. Brian Kemp rejected the bill, arguing that sudden change would undermine corporate planned investments in Georgia.
Consumer advocates say more states should withdraw their incentives.
Kasia Tarczynska, a senior research analyst at Good Jobs First, a policy group that tracks government subsidies related to economic development, said many data centers do not provide sufficient tax revenue to cover tax credits.
“It’s not a state budget victory program,” she said.
Oregon is rapidly increasing data centers in the state’s eastern part of the state, Democrat Pam Marsh said.
“The growth of data centers outweighs all other types of traditional user categories,” she said. “There is a lot of evidence that demand for these data centers is already being shifted to housing fee payers.”
Marsh is sponsoring a bill that requires data centers and other large energy users to be assigned to another rate class that takes into account the additional costs of electricity demand.
In a letter to Oregon legislators, Amazon Web Services, a retail giant computing subsidiary, said it had worked with the utility to ensure that costs were not passed on to other fee payers. Focusing on its commitment to buying large quantities of renewable energy, the company said major grid upgrades are needed to enable the deployment of cleaner electricity and technologies such as electric vehicles.
Amazon Web Services did not accept requests for interviews. Two other industry leaders, Google and Openai, did not respond to Statelene’s inquiries.
This year, Utah enacted a law that would allow “large load” customers, such as data centers, to create separate contracts with utilities. The aim is to ensure that household fee payers are not hit by the additional costs of powering these facilities. Republican Sen. Scott Sandal, who sponsored the bill, did not respond to Statellin’s request for an interview.
“This new demand requires billions of dollars in capital investment,” said Tyson Slocom, Director of the Public Citizen Energy Program, a consumer advocacy nonprofit. “The usual model is spreading investment costs to all consumers, which is not reasonable here.”
According to Slocum, data center users are moving away from their previous commitment to using clean energy sources.
Some lawmakers point out that many data centers are being built to meet the forecast demand from AI. They worry that exaggerated predictions could force utilities to build expensive infrastructures where utilities are not used.
Industry leaders note that data center construction is driven by consumer demand, and that such facilities make computing much more efficient.
They also argue that digital infrastructure is important to national security and ensures that American data does not pass through poorly secured overseas facilities. And they warn that businesses may be wary of investment in states that have laws deemed destructive.
“This is an industry we are trying to build to meet unprecedented demand,” said Diorio of the Data Centers Union. “(State law) can signal the market that there is friction in that market.”
©2025 States Newsroom. Go to stateline.org. Distributed by Tribune Content Agency, LLC.
Original issue: April 17, 2025, 12:58pm EDT
