The federal government and many large corporate interests have become increasingly aligned in their support for data center development to facilitate the growth of artificial intelligence capabilities in the United States. However, that alignment is not always reflected at the local level, and State lawmakers are increasingly addressing the concerns of some constituents by proposing legislation limiting data center development through measures such as moratoriums, resource restrictions and tax benefit prohibitions.
The North Carolina State Legislature recently proposed the “Ratepayer and Resource Protection Act,” (“HB 1063”) seeking to impose stringent restrictions and obligations on data center projects. The proposal follows Governor Josh Stein’s comments earlier this year that “data centers [need to] pay their fair share for the electricity they require to be generated” when developed to avoid cost increases to other ratepayers. HB 1063 would eliminate certain tax incentives for data center developments, impose material obligations concerning energy and water consumption and reclamation, and address special large-load energy rates for data centers. Proposed and operating data centers would be required to provide reports projecting and disclosing water and electricity consumption. HB 1063 would also require data centers to maintain on-site clean generation resources adequate to offset at least 25% of their projected peak electricity demand.
While lawmakers in North Carolina are seeking to impose guardrails on development and resource usage, legislators in Maine recently attempted to go one step further, passing “An Act to Establish the Maine Data Center Coordination Council and Place a Temporary Limitation on Certain Data Centers” (“LD 307”). Under LD 307, a moratorium on data centers requiring 20 megawatts or more of capacity was proposed. Governor Janet Mills ultimately vetoed LD 307 because it did not exempt a $550 million project currently underway that has received strong local support in a former mill town.
Notwithstanding her veto, Governor Mills expressed to the Legislature that she “believe[s] it necessary and important to examine and plan for the potential impacts of large-scale data centers in Maine, as the use of artificial intelligence becomes more widespread” and signaled support for a future pause on development. Governor Mills also signed LD 713, eliminating state business development tax incentives for new data centers. While the legislature did not overcome the Governor’s veto of LD 307, the initial passage of the legislation by the Legislature and the Mills administration’s support for portions of the legislation as well as LD 307 would indicate that additional attempts to regulate data centers in Maine are likely.
With attention on data centers increasing at the local level, and coalitions desiring restrictions on their growth becoming increasingly complex, data center developers may need to consider strategies to address potential risks early in the development cycle to avoid extensive delays, sunk costs and abandoned projects. Community and stakeholder engagement, from the local level to the state level, will be critically important to ensure an understanding of local political issues that can be difficult to navigate from out of state corporate offices. Identifying and avoiding, where possible, NIMBY issues early in processes will be crucial to avoiding long-term siting issues. As seen in North Carolina, increasing attention will be placed on resource usage by data centers. To address these issues, developers are encouraged to formulate plans for resources that include on-site energy generation and storage and reclamation of water resources to mitigate potential negative impacts on neighbors. Finally, developers and long-term data center owners should devise strategies that promote and highlight community benefit arrangements like those seen in the offshore wind space to ensure local interests share in the value of having a data center in their area.
Stay tuned for more to come from the Sheppard team on data center developments in the U.S.