Data centers face a sweeping new power regime

Driving the news: The provisions are part of broader Senate legislation aimed at speeding up permitting for energy — but make no mistake: The data-center measures are significant and would go far beyond Washington's largely voluntary efforts to date.

• The bill's sponsors say it would accelerate energy development while ensuring data centers pay their share of grid upgrades.

"I don't think we've seen it before," said Ari Peskoe, director of the Electricity Law Initiative at Harvard Law School, about the proposed additional costs and restrictions.

• "But I don't think we've seen growth that's comparable to data centers today, and I certainly don't know any industry whose electricity usage has captured so much political attention."

Between the lines: For tech companies, the bill cuts both ways. Congress would make it easier to build the energy infrastructure they need while erecting a sweeping framework aimed at keeping other electricity customers from footing the bill.

"Just to be candid, having some teeth on data center accountability and ratepayer protection is just table stakes to getting a deal done," said Jane Flegal, a former White House official under President Biden and now a senior fellow at the nonprofit Searchlight Institute.

The big picture: Congress has been talking about overhauling permitting for years. The AI boom has given lawmakers an urgent reason to finally act: America suddenly needs enormous amounts of new power infrastructure, fast.

• Faster approvals for power plants and transmission lines could directly benefit data centers struggling to secure enough electricity for their expansion.

How it works: The bill reaches into virtually every part of the relationship between large data centers and the electric grid.

• Data centers would be required to pay both their share of the existing transmission network and the incremental transmission costs needed to serve them, reversing a decades-old federal pricing policy that generally prevents charging both. This is the biggie, but it doesn't stop there.
• New data centers of at least 20 megawatts would have to bear the incremental costs they impose across the power system, including generation, storage, transmission and distribution.
• Regulators at both the federal and state levels could charge large data centers even more than those incremental costs — and use the excess to reduce other customers' bills.
• Data centers would remain on the hook for infrastructure costs even if they stop buying electricity before those costs have been recovered. Utilities would also have to secure financial guarantees before building infrastructure to serve them, protecting ratepayers if projects don't materialize.

Zoom in: States are already moving aggressively to protect ratepayers, with dozens of policies pending or in place across more than half the states aimed at making data centers shoulder more of the costs of serving them.

• The bill would explicitly give states wide latitude to go further, including treating data centers less favorably than other large industrial customers, competitively allocating access to electricity and requiring them to secure new power supplies or accept limits on electricity use.

What they're saying: Not much publicly, yet. The Data Center Coalition, which represents companies across the industry, said it is still reviewing the legislation.

• Microsoft, Google and Nvidia declined to comment, while Meta didn't respond to a request for comment.
• Amazon energy policy director Craig Sundstrom said the aging grid and slow permitting are putting pressure on electricity costs, adding that the bill "could unlock the investment needed to build new generation and transmission faster."

The intrigue: One tech industry official called some provisions an "unprecedented level of discriminatory treatment" for a single industry.

• The official, who spoke anonymously to discuss industry deliberations, said tougher grid-connected requirements could encourage some developers to build more power systems completely off-grid instead — potentially undermining the overarching purpose of the bill.

The other side: Travis Fisher, a former Trump White House energy official now at the libertarian Cato Institute, said he has "mild support" for the approach despite concerns about setting a discriminatory precedent.

• He said the provisions "break new ground" at the Federal Energy Regulatory Commission but are consistent with the White House's ratepayer-protection pledge many of the largest data center companies have already signed.

What we're watching: Flegal said she would be "incredibly surprised" if tech companies ultimately oppose the broader package.

What's next: With the Senate out of town ahead of the midterm elections, lawmakers and stakeholders have plenty of time to push for changes before a possible lame-duck debate.