Webinar Recap: State Policy Solutions for Data Center Impacts — Electricity Affordability and Reliability

As rapid data center growth continues to drive electricity demand across the country, strains on the power grid could increase electric bills for all ratepayers and threaten reliability. Some parts of the country are predicting energy supply shortfalls due to data centers, and without strong regulations ratepayers could be forced to bear the cost of grid upgrades necessary to accommodate the extra load. Additionally, without more transparency into how many proposed data centers will actually get built, regulators have a challenge in proactively planning for potential growth.

State policymakers have unique jurisdiction over the retail electric system and a wide range of tools at their disposal to help combat these risks. From deploying clean energy and establishing consumer protections to requiring transparency and lessening the risk of stranded assets, states are exploring solutions to manage data center load growth across the country. We explore these solutions in Climate XChange’s State Policy Toolkit for Data Center Regulation on Electricity Affordability and Reliability.

In this webinar, we reviewed the impacts of data centers on electricity affordability and reliability, and what policy tools are available to states to protect ratepayers and the grid. Our speakers included:

• McKenna Beck, the Ralph Cavanagh Climate Solutions Fellow at NRDC and author of At the Crossroads: A Better Path to Managing Data Center Load Growth.
• Jordan Gerow, Director of Policy and Research at Climate XChange, who  explored policy tools from the State Policy Toolkit for Data Center Regulation: Electricity Affordability and Reliability.

McKenna Beck, NRDC

Learn more by watching the webinar at 04:15. 

McKenna provided a deep dive into how and where data centers are straining electric grids, including examples from NRDC’s recent publication, At the Crossroads: A Better Path to Managing Data Center Load Growth, to bolster energy affordability while advancing clean energy. Highlights from her presentation include:

• Data centers are the leading driver of load growth, largely concentrated in the South, Southeast, Mid-Atlantic, Midwest, and Pacific Northwest, posing unique challenges to regional grids.
  • Data centers are also concentrated in cities with many utilities expecting demand to double or even triple over the next decade.
• Data centers pose a threat to affordability due to uncertainty about the future of the industry, leading to speculative load forecasting and unique financial risks, including stranded costs, contracts offering preferential rates, volatile energy and capacity markets, and cost shifts from large investments in shared infrastructure.
• Data centers also pose a threat to climate targets due to their increased demand, with concerning trends including increased reliance on existing fossil fuels, additional buildout of new gas (e.g., Meta’s announced data center in Richland Parish, LA), and delayed retirements of coal and gas plants (e.g., Georgia Power’s 2025 IRP approved delayed retirements of 2 coal plants through 2038). Additionally, existing carbon-free energy may be cannibalized by data centers, which might put pressure on REC markets and be backfilled by gas.
• Large, uncertain, and inflexible loads are the biggest challenge.
  • While data centers’ grid impacts are not uniform, they generally have steady high demand around the clock.
  • Most data centers have inflexible loads, which causes disproportionate impacts to peak demand and its associated costs.
• States attempting to regulate data center deployment must simultaneously solve for potential adverse impacts to energy and economywide affordability, grid reliability, and emissions, health, and environmental outcomes. On the other hand, many local stakeholders are influenced by the promise of economic development and federal headwinds on AI dominance, often resulting in pushback to data center regulation.
• State-level data center regulations to address energy affordability, which are further along in policy processes than clean energy or grid benefit policies, include:
  • Fees to establish low-income assistance.
  • Demand side management programs to reduce peak demand from other customers.
  • Large load tariffs, which can ensure that high-energy use facilities are paying their fair share through new rate classes that require financial commitments to requested capacity.
• Flexibility can improve speed to power for data centers while boosting grid reliability and lowering costs for other customers, but economic feasibility and impacts to emissions are unclear.
  • Duke’s Nicholas Institute found 100 GW of headroom in the U.S. that new large loads can utilize if they curtailed electricity usage for a few hours a year, allowing facilities to be brought online with minimal new infrastructure and potentially lowering rates for all customers.
• States can initiate these energy affordability policies through PUC-initiated large load tariffs (e.g., Indiana Michigan Power or AEP Ohio), state legislation (e.g., Oregon’s POWER Act or Oklahoma’s HB 2845), or a hybrid of both (e.g., Pennsylvania’s PUC Docket & HB 1834, or Minnesota’s HF 16 & Xcel Energy’s tariff).

Jordan Gerow, Climate XChange

Learn more by watching the webinar at 21:25. 

Jordan provided an overview of state-level policy approaches to regulate the impacts on electricity affordability and reliability from data center growth, including policies and examples from the recently-released State Policy Toolkit for Data Center Regulation: Electricity Affordability and Reliability. Highlights from his presentation include:

• States must approach data center regulation holistically across water, energy, emissions, and economic priorities, each with their own set of tradeoffs, and work alongside local governments and communities to create meaningful solutions.
  • Affordability and reliability issues have seen more state-level success in certain jurisdictions, which is the focus of this toolkit. A forthcoming toolkit will focus on the related policies addressing renewable energy and emissions impacts.
• States can require data centers to pay for incremental costs to electric service through enacting:
  • Large load tariffs
    • There have been 76 proposed tariffs across 36 states, including 51 enacted tariffs, with only 15 pre-dating 2025.
    • Terms should cover all system costs related to energy, capacity, transmission, distribution, REC market rates, and ancillary services, and can include:
      • Minimum demand charges, requiring data centers to pay for electricity costs associated with requested load, regardless of actual demand. Load ramp periods can minimize the risk of data centers not paying for their contracted power.
      • Minimum contract terms, reducing the risk of stranded assets (e.g., Maryland HB0900’s 20+ year load ramp).
      • High exit fees, discouraging data centers from breaking contracts (e.g., a proposed Kentucky tariff’s requirement to make a one-time payment equal to five years’ minimum billing).
      • Notice requirements (e.g., Kentucky’s requirement of notice five years before exit).
      • High collateral requirements, minimizing the risk of stranded assets and discouraging applications with unrealistic load projections (e.g., AEP Ohio’s credit and cash collateral requirement of 50 percent of contract lifetime minimum charges).
  • One-off contract review policies to protect ratepayers, where large load tariffs don’t exist
    • Set standards for contract review (e.g.,Colorado PUC’s “principles” for 50+ MW contracts or Kentucky PSC’s obligation to make several findings on the record confirming data centers’ contributions to paying their fair share).
    • Fund intervenors to participate in contract review, such as local governments or NGO organizations, as many states already do for more general purposes.
  • Data center energy surcharge fees to support bill assistance (e.g., New York’s S 6394 (proposed, 2026) and Minnesota’s HF 16 (enacted, 2025)).
• States can require or incentivize data centers to operate flexibly in response to grid conditions, such as through mandating that data centers switch to backup or curtail load (e.g., Texas’ SB 6 (enacted, 2025)).
• States can steer data centers toward areas that would minimize grid strain, including:
  • Optimizing locations that minimize grid costs and site new clean power behind-the-meter. States can achieve this by:
    • Creating a statewide planning commission to name preferred data center locations, based on “existing electric grid and energy,” as well as “consideration of fiber, water, labor, and latency related to data centers” (eg. NC HB 1002 (failed, 2025)).
    • Providing expedited interconnection for projects at surplus interconnection sites (eg. MD HB 940 (proposed, 2026)).
    • Providing a more favorable incentive to projects in close proximity to transmission facilities or generation site (eg. Florida Power & Light Company proposed tariff).
  • Permitting incentives, including pre-permitting for data center projects at a specific location.
    • E.g., New York and Massachusetts have tasked a state agency with much of the work that a developer would otherwise do to receive permitting approval for renewable development at a brownfield or other repurposed site, so that permitting a specific project can be done expeditiously.
• States can require disclosure and planning related to interconnection queues to provide accurate data for grid planners by:
  • Requiring data centers to disclose if they have pursued other connection requests, in or out of state (eg., Texas SB 6 (enacted, 2025)).
  • Requiring that load forecasts not include an addition in demand unless the customer can demonstrate that it is likely they will use that electric service (eg., Texas SB 1641 (failed, 2025)).
  • Ensuring that data centers can prove that a proposed project is unique and not duplicative of another project (eg., New Jersey A5462 (vetoed, 2025)).

Q&A

Learn more by watching the Q&A at 49:00. 

Q: What guardrails might you recommend or have you seen for data centers using onsite power?

Q: What safeguards are there to prevent utilities from building infrastructure based on speculative or duplicative data center demand?

Q: Given that data centers disproportionately increase peak demand and capacity cost, do you have examples of policies that best reduce peak driven infrastructure expansion without undermining reliability?

Q: Are there any examples of states that are working on both electricity affordability and reliability in the data center space and marrying that with decarbonization goals and clean energy build out?