New Legislation Proposed for Data Centers' Energy Costs and Infrastructure

<p>Lawmakers are considering legislation that would impose new costs and restrictions on data centers while expediting the energy infrastructure needed to support the growth of artificial intelligence (AI).</p><p><strong>Why it matters:</strong> The bipartisan legislation, introduced last week, is seen as a significant response from Washington to the growing concerns regarding the energy consumption and environmental impact of data centers.</p><hr /><p><strong>Driving the news: </strong>The proposed measures are part of a broader Senate bill aimed at accelerating the permitting process for energy projects. The data center provisions are notable and would extend beyond previous voluntary efforts.</p><ul><li>According to the bill's sponsors, it aims to facilitate energy development while ensuring that data centers contribute to grid upgrades.</li></ul><p><strong>Expert opinion:</strong> Ari Peskoe, director of the Electricity Law Initiative at Harvard Law School, remarked on the unprecedented nature of the proposed costs and restrictions for data centers.</p><ul><li>Peskoe noted, "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."</li></ul><p><strong>Between the lines:</strong> For technology companies, the legislation presents a dual impact. It would simplify the construction of necessary energy infrastructure while establishing a framework to ensure that other electricity customers do not bear the financial burden.</p><p><strong>Industry perspective:</strong> Jane Flegal, a former White House official under President Biden and now a senior fellow at the nonprofit Searchlight Institute, stated that having accountability measures for data centers is essential for reaching an agreement.</p><p><strong>The big picture:</strong> Congress has been discussing the need to reform permitting processes for years. The rapid growth of AI has created an urgent need for substantial new power infrastructure.</p><ul><li>Expedited approvals for power plants and transmission lines could directly support data centers that are facing challenges in securing sufficient electricity for expansion.</li></ul><p><strong>How it works:</strong> The proposed bill would affect various aspects of the relationship between large data centers and the electric grid.</p><ul><li>Data centers would be required to cover their share of the existing transmission network costs as well as additional costs incurred due to their operations, reversing a long-standing federal pricing policy.</li><li>New data centers with a capacity of at least 20 megawatts would be responsible for the incremental costs they impose on the power system, including generation, storage, transmission, and distribution.</li><li>Regulators at both federal and state levels could impose charges on large data centers that exceed these incremental costs, using the surplus to lower bills for other customers.</li><li>Data centers would still be liable for infrastructure costs even if they cease purchasing electricity before those costs are fully recovered. Utilities would also need to obtain financial guarantees before constructing infrastructure for data centers, protecting ratepayers in case projects do not proceed.</li></ul><p><strong>State actions:</strong> Several states are actively implementing policies to protect ratepayers, with numerous measures proposed or already in place that require data centers to assume more of the costs associated with their energy consumption.</p><ul><li>The bill would grant states the authority to impose stricter regulations, including treating data centers less favorably than other large industrial customers, allocating electricity access competitively, and requiring them to secure new power supplies or limit their electricity usage.</li></ul><p><strong>Industry response:</strong> The Data Center Coalition, representing various companies in the sector, stated it is currently reviewing the legislation. Microsoft, Google, and Nvidia did not provide comments, and Meta did not respond to inquiries.</p><ul><li>Craig Sundstrom, Amazon's energy policy director, expressed concerns about the aging grid and slow permitting processes, stating that the bill "could unlock the investment needed to build new generation and transmission faster."</li></ul><p><strong>Concerns raised:</strong> An anonymous tech industry official described some provisions as an "unprecedented level of discriminatory treatment" for the data center sector, suggesting that stricter grid-connected requirements might lead some developers to pursue off-grid power systems instead.</p><ul><li>Travis Fisher, a former energy official in the Trump administration now with the Cato Institute, expressed mild support for the approach, despite concerns about setting a discriminatory precedent.</li><li>Fisher noted that the provisions represent new developments at the Federal Energy Regulatory Commission but align with the White House's commitment to protecting ratepayers, a pledge that many major data center companies have signed.</li></ul><p><strong>What to watch for:</strong> Flegal indicated that she would be surprised if tech companies ultimately opposed the broader legislative package.</p><p><strong>Next steps:</strong> With the Senate in recess ahead of the midterm elections, lawmakers and stakeholders have time to advocate for changes before a potential debate in the lame-duck session.</p>