Driven by environmental and cost concerns, a growing number of states are looking for ways to rein in the data center industry, as new applications for artificial intelligence have kicked off a surge in their demand.
While most states want to invite tech companies to invest, lawmakers are also looking at several ways to put more regulations in place.
Those include instituting a special rate for data centers to protect consumers; requiring disclosure of power and water usage; imposing climate requirements; sunsetting tax incentives; and studying the industry’s impacts, including on state natural resources.
“As the data center sector grows, we should know specifically what the true economic impact is,” Maryland Del. Brian Crosby (D) said in a committee hearing on his impact study bill. “And what does that do to our grid overall? And what is the energy impact?”
Legislation has been introduced in at least 11 states this year: California, Connecticut, Georgia, Indiana, Maryland, Minnesota, New Jersey, New York, Oregon, Texas and Virginia.
The bills come as the nation is poised to see significant growth in electricity demand. Projections indicate a rise in demand of 35% to 50% by 2040, driven primarily by data centers that support AI. The technology is experiencing a period of rapid advancement and increasing integration into various aspects of life.
Data centers — which also support manufacturing, cloud computing, finance, health care and many other services and industries — can consume as much electricity as a city. They use water to keep servers and other equipment from overheating — another concern for lawmakers.
To meet the coming demand for electricity, states have tried to facilitate the construction of new power plants and put off the retirement of existing facilities. But the trend has also prompted state lawmakers to seek protections for their constituents from the impact of data centers, including potentially increasing electricity costs and damaging the climate.
Dan Diorio, senior director of state policy for the Data Center Coalition, an industry trade group, said the industry is working with lawmakers and other regulators to strike a balance to protect consumers and the environment while not overburdening the market.
“The industry remains committed to paying its full cost of service for energy while promoting sustainable water usage in its operations,” Diorio said. “Adverse legislation can jeopardize the viability and competitiveness of data-center projects located in a jurisdiction and send market signals that can hinder new investment.”
The industry is concerned about increased disclosure requirements, including energy usage, saying that bad actors could use the disclosures to uncover proprietary information about a data center’s tenants, which could threaten national security.
“The industry will continue to engage with policymakers to promote additional responsible development at a time of unprecedented demand for data center services,” Diorio said.
Diorio appeared on May 7 before a Texas House committee that was considering a sweeping bill designed to improve grid reliability and avoid outages like those seen in 2021, when Winter Storm Uri left 69% of Texans without power and 49% without water service. The Senate passed the bill in March.
Diorio raised concerns about three provisions: requiring large-load customers such as data centers, manufacturers, and crypto miners to allow regulators to remotely disconnect their facilities from the grid during emergencies; requiring facilities to be switched to backup power when the grid is strained; and requiring operators to disclose data center connection plans inside and outside the state to help regulators forecast future demand.
Legislation in Indiana, Maryland and Virginia was passed in recent weeks.
Indiana Gov. Mike Braun (R) signed legislation requiring large-load customers to cover 80% of the cost of power-generation projects, with other customers covering the other 20%. The Maryland measure, which is waiting for Gov. Wes Moore’s (D) signature, calls for an analysis of the likely environmental, energy and economic impacts of data center development in the state.
The Virginia measure was vetoed this month by Gov. Glenn Youngkin (R), a data center industry champion. The bill would have required data center developers to provide localities with assessments of both noise and power demand before new data centers could be approved.
Youngkin said the bill would make it more difficult for localities to win data center business, thereby hurting the industry’s development in the state.
Virginia is the data center capital of the world, housing more than 35% of the world’s large-scale data centers. Youngkin said the industry provided $733 million, or 31% of total tax revenue, for Loudoun County in 2024. Across the state, data centers have contributed about 74,000 jobs and $9.1 billion, or about 1%, annually to Virginia’s gross domestic product.
But Del. Josh Thomas (D), a bill sponsor, said his constituents are hurt by a lightly regulated data center industry.
“Glenn Youngkin has once again prioritized corporate interests over community well-being,” Thomas said in a statement. “His decision to ignore calls for responsible data center growth exposes his allegiance to big tech and profit — at the expense of our residents’ health and environment. The people deserve leadership and legislation that puts their well being over corporate profits.”