As Data Centers Push into States, Lawmakers are Pushing Right Back

The first time Oregon state representative Pam Marsh tried to tighten the leash on the data center industry, she learned the hard way that its biggest players know how to put up a fight.

It was early 2023, just months after the public launch of ChatGPT, and the world was just beginning to grapple with generative AI’s power — and the power demands of the data centers that run AI models. To address this, Marsh put forth a bill that would require data centers in the state to run exclusively on clean energy by 2040. The bill would have put data centers on track to conform to Oregon’s state climate goals.

At least, it would have done that if Amazon and other industry heavyweights hadn’t stepped in to squash it. “We ran into a wall of objections,” Marsh, a Democrat from the state’s 5th District, told Tech Policy Press.

Two years later, Marsh is once again trying her luck, this time pushing forward legislation that would ensure the corporate giants behind these data centers pay for their own exorbitant energy bills. “We're not asking them to subsidize anybody else. We're not challenging the tax benefits that very often come with their development,” Marsh said. “We're just saying: You’ve got to pay your own way.”

Marsh is just one of a growing number of lawmakers pushing back on data centers’ largely unchecked expansion into their states. Microsoft has said it will spend more than $40 billion on data centers in the US this year alone. Amazon will spend another $10 billion in Ohio. Meta is pouring $10 billion into its largest data center in Louisiana. And all of that’s in addition to the much-touted Stargate project, a $100 billion partnership between Oracle, OpenAI, Softbank, and the Emirati investment firm MGX to build data centers in Texas and beyond.

“This will include the construction of colossal data centers — very, very massive structures,” President Donald Trump said when Stargate was announced at The White House shortly after he took office.

But those very, very massive structures also require a very, very massive amount of power. By 2030, the consultancy McKinsey estimates data centers will go from accounting for around 4% of total US power demand to up to 12%. The sheer speed and scale of that growth is prompting state lawmakers of all political persuasions — from Texas Republicans to New York Democrats — to propose new limits.

Many of these bills, including Oregon’s, focus on ensuring that ordinary ratepayers don’t wind up paying for the new transmission lines, substations, and other utility infrastructure that will be necessary to accommodate new data centers. “Traditionally, when a utility expands the size of its system, the public pays for it on the theory that the growth in energy demand is generally reflective of society's growth,” said Ari Peskoe, director of the Electricity Law Initiative at Harvard Law School. But with data centers, he said, “growth is now being driven largely by a handful of buildings that are just massive energy users.”

And yet, as Peskoe explained in a recently co-authored paper on the subject, the deals between utilities and their data center clients are often negotiated in secrecy, creating little visibility into how much cost the average ratepayer is taking on. “Public utility commissions in many states have to approve these contracts,” Peskoe said, but they often operate with limited information. “It's not surprising that in almost every case, the utility commission signs off.”

Over the last five years, Marsh said, energy demand growth for data centers in Oregon has been akin to adding 400,000 new people to the system. In reality, only 60,000 people were added over that period. Her bill, the Protecting Oregonians With Energy Responsibility Act, or POWER Act (HB 3546), would address that growth by directing the Oregon Public Utility Commission to create a new rate classification for data centers and crypto mines. In doing so, the state would ensure that ordinary Oregonians wouldn’t bear the cost of data centers’ expansion.

It would also require data center customers to sign 10-year contracts to ensure they actually stick around. “These facilities are going to last for decades,” Marsh said. “We want to know that at least for the first 10 years of their lives, they're going to have a customer base.”

Texas, California, and Georgia have all introduced bills aimed at protecting ratepayers. Texas’s bill also includes a “kill switch” provision that would allow the state to effectively cut off power to data centers when the grid is facing an emergency. That line item was included in light of the blackouts that occurred during 2021’s Winter Storm Uri. “Above all, we never want to risk another Uri where over 200 Texans died because they lost their electricity,” state senator Phil King, the bill’s sponsor, recently told the San Antonio-Express News.

The industry has, unsurprisingly, pushed back against a number of these bills. In Texas, the Data Center Coalition argued that cutting off power to data centers could threaten national security. In Oregon, the Coalition said it supports the “underlying intent” of Marsh’s bill but objected to the data center industry being singled out. “Data centers are but one large end user of electric utilities and part of a larger portfolio of end users driving increased electricity demand,” the coalition’s senior director of state policy, Dan Diorio, wrote in written testimony, noting that the bill would create “unjustified distinctions among similar customers.” The Data Center Coalition didn’t respond to Tech Policy Press’s requests for comment.

Google, which operates three data centers in The Dalles, Oregon, similarly objected to the way the bill targets a single industry. And yet, in testimony before a public hearing earlier this month, Ellen Zuckerman, Google’s head of energy market development for the Americas, took a more conciliatory approach. While Google technically opposes the bill, she said, “we really want to work with you on this bill, and are here as collaborators.”

Zuckerman said the company supported efforts in other states to secure similarly lengthy multi-year agreements between utilities and data centers. “When we take a step back and reflect on the bill that's before you today, we think that there are many elements to like,” Zuckerman said. “We also think that there is need for improvement.”

In other states, the bills focus on data centers’ potential climate impact. Connecticut’s bill would require data centers to run on at least 50% renewable energy. Arkansas’ would crack down on crypto mining operations that threaten the groundwater supply.

In New York, state senator Kristen Gonzalez reintroduced a bill this month that would create annual reporting requirements for data centers and require them to run on 100% renewables by 2040, among other provisions. It would also create a discount program for low-income customers who live near data centers. “We’re not saying that we shouldn’t have data centers here,” said Gonzalez, a Democrat who represents parts of Queens, Manhattan, and Brooklyn. “We’re saying an increase in the number of data centers should not come at the cost of our climate goals.”

So far, state lawmakers looking to regulate data centers have faced an uphill battle. In Virginia, home to the densest network of data centers in the world known as Data Center Alley, more than a dozen bills targeting data centers’ water and energy use, as well as rising costs, failed to make it over the finish line this year. Just one bill, requiring site assessments for new zoning applications, passed the legislature and is now waiting for Gov. Glenn Youngkin’s signature.

Gov. Youngkin’s spokesperson said the governor is “still reviewing the more than 900 bills that are on his desk.” But Youngkin has previously welcomed data centers’ expansion. In his State of the Commonwealth address this year, he touted the jobs that the industry has created and the billions of dollars in revenue it’s brought to the state, saying he wants Virginia to remain “the data center capital of the world.”

“Legislating here is fraught,” said Peskoe of Harvard. Not only are utilities influential in their state houses — and eager for data centers’ business — but every state wants to show that they’re part of the new AI-driven economy, and the White House, it seems, wants it too.

Marsh said she has the same hopes for Oregon, just as long as her constituents aren’t stuck with the bill.

(Disclosure: Contributor Issie Lapowsky is married to an Amazon employee.)