Evolutions in State Data Center Regulatory Landscape

The market’s demand for AI has driven the rapid development of new of data centers. These facilities are crucial to AI development and operation and consume vast amounts of electricity often requiring on-site power generation. This makes data centers massive investments for AI companies. However, these facilities also pose major opportunities for state economies courting new jobs and tax revenue. This has led to many state-level incentives including tax breaks and special rules to streamline data center power generation. A memo from Gibson Dunn lists eight recent state actions on data centers that impact data center developers and operators:

1. “The adoption of data center-specific utility tariffs, rate schedules, and procedures aimed at increasing financial requirements for data center developments to ensure grid infrastructure improvements being installed for data centers will be utilized and paid for by the data centers themselves, including specific provisions outlining requirements for load being co-located with behind-the meter generation;
2. Continued availability of tax incentives for data center development, notwithstanding pressure in some states to revisit these incentives, but also tax increases for data centers in some jurisdictions;
3. Increasing opportunities for data centers to source power supply from competitive suppliers, especially in Utah;
4. State and utility moves toward building new gas-fired generation to support data center load growth;
5. Proposed legislation in Arizona to allow siting small modular nuclear reactors at data center sites without obtaining a public utility commission certificate of environmental compatibility;
6. But also, in the case of Minnesota, regulatory action to treat large backup generators like other types of generation, notwithstanding their lack of grid connection, accompanied swiftly by proposed legislation by data center supporters to ensure that backup generation is not subject to increased regulatory burdens;
7. Enhanced (for some) or streamlined (for others) zoning and siting requirements for data centers; and
8. In Illinois and Indiana, proposed legislation to restrict foreign investment in data centers when the foreign investor hails from a country unfriendly to the United States, echoing similar actions and proposals at the federal level.”

Understanding the incentives on offer to data center developers is key to choosing the locations that best suit your company.