State legislative and regulatory initiatives to address concerns caused by the surging power demand of data centers in the U.S.

State legislative and regulatory initiatives to address concerns caused by the surging power demand of data centers¹

Why the States are paying attention

This summer, Governor Abbott of Texas signed into law Senate Bill 6,² which attempts to address concerns arising from the spike in power demand in the state. This spike is driven largely, although not exclusively, by the rapid proliferation of data centers related to the AI boom³. The core objectives of SB6—grid reliability and fair cost allocation—are rooted in Texas’ experience with Winter Storm Uri in 2021. Uri wreaked havoc on the state’s electric grid and economy, causing numerous fatalities. While the blackouts during Uri were not related to data centers or other industrial load, Texas is understandably concerned that the spike in industrial power demand could contribute to future grid events with similar devastating consequences.

SB6 is only one of the many recent state initiatives that seek to address the surge of power demand by data centers in the U.S. Other states are also evaluating options to address the impact on the grid from the massive increase in data center load. State legislatures and utility commissions across the country have been considering mechanisms to protect their retail utility customers from the adverse effects of such development, from both cost allocation and reliability perspectives. Many of these states also seek to ensure that the surge in data center demand does not derail the successful implementation of their clean energy mandates and programs. To address this surge in demand, the states must juggle grid reliability, ratepayer protection, and their clean energy commitments, while at the same time balancing those priorities against the economic benefits of pursuing policies to attract new and expanded data centers within their borders.

This article provides a summary of some of these state initiatives.

It is still too early to opine on the effectiveness of these initiatives, including their impacts on the reliability of the local grid and retail rates paid by the utilities’ customers. While data center developers now consider the availability of reliable power supply to be one of the primary influencers of early development decisions, it is also premature to evaluate how these state initiatives might influence developers’ initial siting choices. Those choices hinge on numerous other factors, such as land availability and favorable tax treatment. The purpose of this article is therefore to provide a sampling of state initiatives – both legislative and regulatory – that illustrate how states are perceiving the risks posed by the rapid addition of data centers and other industrial customers to the grid.

The jurisdictional role of the States 

The states have the primarily role in regulating the supply and delivery of power to end users in the U.S. Since its enactment by Congress in 1935, the Federal Power Act (“FPA”) has divided regulatory oversight of the U.S. power sector between the federal government, acting through the Federal Energy Regulatory Commission (“FERC”), and the individual States, generally acting through their public service or public utility commissions.⁴

FERC only has jurisdiction over certain limited activities – specifically, over the wholesale sale of power (i.e., sales of power for resale) and the transmission of power (i.e., the delivery of power over lines that are typically 69 kilovolts (kV) and above).⁵ States have jurisdiction over basically everything else related to the production and delivery of power. States regulate retail sales of power (i.e., sales of power to end users, including industrial customers such as data centers) and the distribution of power (i.e., the delivery of power over lines that are typically below 69 kV). States also have jurisdiction over the siting of all electric infrastructure, including generating, transmission, and distribution facilities. In other words, with limited exceptions, the federal government cannot mandate (or, for that matter, prohibit) the construction or operation of facilities used for the production or delivery of power.⁶ Although the federal government has created certain economic incentives, such as tax credits, to encourage the development of renewable resources, only the states have the power to require such development.⁷

High level analysis of state initiatives

Many of the state initiatives described in this article address the potential for “cost shifting” between customer classes. Most state-regulated utilities have different state-approved rates they charge to the various classes of customers. For example, there is typically one rate class for industrial end users, another for residential customers, and still another for commercial consumers. In this context, “cost shifting” occurs when one class of utility customers externalizes the costs of its power supply, which are then paid by another class of customers. Cost shifting is a consequence of the standard model for retail ratemaking, where a utility recovers its costs of operation through its customers. If one class of customers imposes more costs on the system than the utility’s rates for that class, the excess costs are necessarily allocated to other classes of customers. Therefore, many of these state initiatives attempt to prevent a situation where the rates paid by an industrial customer such as a data center do not adequately recover the costs incurred by the utility to serve that customer, thus “shifting” those costs to other customers.

A related concern is the potential for “stranded” utility investments. To serve a particular industrial customer, a utility may need to make significant investments in its generation or transmission infrastructure. If the customer abandons its data center campus before those costs are recovered, then the utility’s investment will be “stranded,” and the utility’s remaining customers, who may not have benefitted from that new infrastructure, become responsible for those costs.

Another interesting regulatory development related to the surge in data center demand involves the issue of “retail choice.” In most states, an end-use customer is required to purchase power from the local utility. However, a handful of states have adopted a system in which customers may source their power from a third party competitive retail provider (i.e., they have “retail choice”).⁸ Certain states, such as Virginia, offer limited retail choice only to large-scale industrial customers, but not residential or small commercial customers. With a retail choice option, it becomes much simpler for a data center to “bring its own generation” by partnering with a third-party generator, which relieves the local utility of the burden of constructing additional generation and wires to meet data center needs. As discussed below, a number of states are now considering limited retail choice as mechanism for meeting data center demand.

Summary of state initiatives

Below is a summary of such recent and current state initiatives. But first, a few caveats.

This summary is not exhaustive. Almost every state legislature and utility commission across the country is taking steps to address the grid concerns related to data center development. At the same time, many of those states are also evaluating how aggressively they should pursue data center investment.

This summary should also not be considered in isolation. A state may pass legislation to ensure that data centers pay their fair share of the costs they need to obtain their power supply. At the same time, the state may be considering legislation to provide tax and other economic incentives to encourage data center development. The states are juggling carrots and sticks in the hope that they can realize the economic benefits of industrial development, while protecting their ratepayers and the local grid from the adverse impacts of such industrial users of power.

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Colorado:  House Bill 1177, which was signed into law in May 2025, allows the state’s regulated utilities to offer “economic development rates” for up to 25 years for customers with power demands of up to 40 MW.⁹ Utilities can also offer economic development rates, with the approval of the Colorado Public Utility Commission (“CoPUC”), to customers with demands greater than 40 MW. An “economic development rate” is a rate that is lower than the utility’s standard rates for providing power to its customers, but that is high enough to permit the utility to recover its marginal cost of providing service to the customer. When offering economic development rates, the utility must demonstrate to the CoPUC that, among other things, the new load will not negatively impact reliability and that the costs of any new electric infrastructure necessary to serve that load will not be borne by other customers.

The purpose of HB 1177 was to encourage economic development in the State by providing data centers with low-cost power, while nonetheless establishing a process to ensure that the new load does not result in reliability degradation or “cost shifting.” However, HB 1177 has been criticized by those who “want assurances that lower-cost electricity [for data centers] isn’t subsidized by homeowners and other businesses.”¹⁰

Georgia:  In January 2025, the Georgia Public Service Commission (“GPSC”) approved a new rule that would allow the state-regulated utility, Georgia Power, to charge data centers for electric service in a manner designed to protect the State’s retail ratepayers from cost-shifting.¹¹ Under the GPSC rule, any new customers with more than 100 MW of demand can be billed using terms and conditions that deviate from those used by the utility’s other customers classes. The non-standard terms and conditions are intended to address risks associated with large-load end-users.

The new rule also allows utilities to enter into longer-term contracts – an increase from 5-year to 15-year contracts – and to impose minimum billing requirements for high-load customers. These minimums create a disincentive for new high-usage customers that might otherwise close their operations and leave the state prior to paying for new electric infrastructure constructed specifically to serve their needs.

The rule also provides that any new Georgia Power contract with a customer above 100 MW must be approved by the GPSC, providing additional regulatory oversight over power contracts between the utility and large-load customers. The GPSC chairman stated that “[t]he amount of energy these new industries consume is staggering. By approving this new rule, the PSC is helping ensure that existing Georgia Power customers will be spared additional costs associated with adding these large-load customers to the grid.”¹² 

Indiana:  In February 2025, the Indiana Utility Regulatory Commission (“IURC”) approved a settlement agreement that establishes rules for connecting data centers and other large-load users to the grid.¹³ While the IURC approved a specific agreement between a state-regulated utility and several large data center companies, this decision also implemented new rules for connecting data centers to the grid for applicable all of the state’s regulated utilities. The new regulations establish mechanisms to ensure that the costs incurred by utilities in serving data centers are reasonably recovered from the large-load customer and not shifted to the utilities’ other customers. Among these mechanisms is a requirement that data center developers make financial commitments to cover the costs associated with their grid connections.

Maryland:  In May 2024, Governor Moore signed into law the Critical Infrastructure Streamlining Act,¹⁴ which passed unanimously in both the House and Senate. Governor Moore stated that the new law “is going to supercharge the data center industry in Maryland, so we can unleash more economic potential and create more good paying union jobs.”¹⁵ The act, which amended existing law, was designed to make it easier for data centers to install backup generators.

The act provides a definition for “critical infrastructure” that expressly includes data centers, thereby proving them with an avenue for installing backup generation, which is necessary for their operation. The act was in response to, among other things, an October 2023 decision by the Maryland Public Service Commission (“MPSC”) to effectively deny a data center’s application for 160 diesel generators on its campus.¹⁶

New Jersey:  In August 2025, the governor signed into law legislation directing the New Jersey Board of Public Utilities (“BPU”) to study “the effect of electricity usage by data centers on electricity costs” in the state and whether ratepayers were paying unreasonable rates in connection with the increased data center demand.¹⁷ Within 15 months, the BPU is required to issue a report evaluating, among other things, “various policy alternatives, including the use of a special tariff to be applied to data centers within the State, that could be used to mitigate or avoid rate increases in New Jersey caused by increased electricity demand by data centers.”¹⁸

North Carolina:  : In April 2025, the North Carolina legislature passed the Rate Payer Protection Act.¹⁹ The act prohibits the State’s regulated utilities from recovering the costs of providing power to commercial data centers from the utilities’ other retail ratepayers. A “commercial data center” is defined as having a peak demand of 100 MW or greater. The statutory language prohibiting utilities from permitting the shifting the costs of commercial data centers to other customer classes is relatively broad, and includes any costs that “may be reasonably attributed to, either in whole or in part, the electric demand of commercial data centers.”

Ohio:  In July 2025, the Public Utilities Commission of Ohio (“PUCO”) issued a decision, following a heavily-litigated proceeding, permitting a utility to impose enhanced financial obligations on data centers to support the development of any new grid infrastructure necessary to serve them.²⁰ These financial requirements were designed to protect other customers from paying for the costs of grid improvements required to meet data centers’ energy demands (i.e., cost shifting). The rule also requires that new, large data center customers pay for a minimum of 85% of the energy they are subscribed to use, even if they use less, to cover costs of any required new infrastructure.

In addition, in April 2025, Ohio passed HB 15/SB 2, which amended the state’s competitive retail electric service law.²¹ Among other things, the law contains certain microgrid provisions that permit large industrial end users to established shared, behind-the-meter generation configurations,²² which are referred to as “mercantile customer self-power systems.” This permits industrial customers to pool their resources through the construction of jointly-owned localized power grids. This reduces the customers’ reliance on, and strain to, the local grid, while ensuring the availability of reliable and redundant power sources.

Oregon: House Bill 3546 – referred to as the “POWER Act” – was signed into law in June 2025.²³ The act creates a new classification for large industrial end users, such as data centers, using more than 20 MW to ensure that they pay for their fair share of costs of the delivery of power to meet their load. It requires new data centers to buy power from the state-regulated utilities for a minimum of 10 years and to purchase a minimum amount of power. It also grants additional authority to the Oregon Public Utilities Commission to ensure that large customers pay for the infrastructure costs they cause.

There was also a proposal before the Oregon legislature that would have required new data centers and crypto miners to take measures to meet the state’s climate objectives. Specifically, the bill would have required such industrial end users to source 80% of their power from clean resources by 2030, increasing to 100% by 2040. However, that bill failed to pass a committee vote in April 2023.²⁴

Pennsylvania:  In April 2025, the Pennsylvania Public Utility Commission (“PaPUC”) held a hearing to “explore[] the growing impact of large-scale electric customers — including data centers and other high-energy users — on the state’s electric grid.”²⁵  One of the main issues addressed at the hearing, which covered a wide range of topics, was how to protect retail customers from stranded assets.²⁶  In connection with that proceeding, PaPUC is also currently drafting a model rate structure for “large load” customers such as data centers for utilities to consider adopting.

South Carolina: There have been reports that the state legislature is beginning to look at whether to permit certain industrial end users to have “retail choice” – i.e., to permit them to purchase power from suppliers other than the local utilities. These discussions have been prompted by the strain that the increasing power demands of industrial end users are having on the grid.²⁷

Also, Santee Coper, the state-owned utility in South Carolina, took steps in April 2025 to establish a special electricity rate for large end-users 50 MW and greater and to ensure that those customers are covering the costs of power being generated to meet their needs.²⁸ The special rate will apply for on a temporary, 4-year basis. New users covered by the rules would be required to execute a 15-year contract with minimum payment obligations, and the utility will charge more for power during high-demand, peak periods.

Texas:  As noted above, SB6 was an attempt to address a number of issues arising from the spike in power demand in the state. Among other things, SB6 is intended to ensure that large load customers are responsible for paying the costs the utilities incur in interconnecting them to the grid. While SB6 defines a “large load customer” as having a demand of 75 MW or greater, the Public Utility Commission of Texas (“PUCT”), when implementing SB6, has the ability to set a lower threshold.²⁹

SB6 imposes new operational and financial requirements on large load customers. It also directs the PUCT to adopt standards for the interconnection of large load customers to the grid that are designed to ensure that the customers pay the appropriate upgrade costs. These standards are also intended to minimize the potential for stranded transmission assets. In addition, the law creates requirements for the co-location of large load customers with existing generation and authorizes the PUCT, under certain circumstances related to reliability, to curtail or dispatch behind-the-meter generation and large load.

Utah:  In March 2025, the governor signed into law Senate Bill 132, which modified the utility’s duty to serve “large loads,” which it defines as 100 megawatts or more.³⁰  Among other things, under the new regime, the utility will have 90 days to evaluate the impact of a large load request on its grid and determine whether it can meet the new demand without making significant investments in electric infrastructure. If it cannot, the new law allows the data center to seek out its own energy supply. Qualifying data centers in the state can obtain electric service from either (i) the local utility, (ii) a third-party generator that delivers the power over the utility’s grid, or (iii) from “closed private generation systems” that are wholly behind-the-meter and do not interconnect to the local grid.   

Washington: House Bill 1416, signed into law in May 2023, sets out the requirements for data centers and other large non-residential power consumers served by certain public power entities, such as municipally-owned electric utilities and public utility districts.³¹ HB 1416 was intended to close a gap in the State’s Clean Energy Transformation Act by ensuring that large power consumers served by public power entities are subject to the same clean energy standards as those served by the state-regulated public utilities, which are required to achieve greenhouse gas neutrality by 2030 and transition to 100% renewable and non-emitting power resources by 2045.

West Virginia:   In May 2025, the West Virginia governor signed into law revisions to a pre-existing state program that allowed high impact industrial facilities in certain areas of the state to obtain renewable power from behind-the-meter generators, rather from the regulated local electric utility.³²  The amended law is now applicable to “high impact data centers.” The amendment also eliminates some of the requirements of the program, including its restriction to the production and consumption of renewable power. We provided a detailed analysis of the West Virginia program here [West Virginia expands microgrid access for high impact data centers].

The amendment was passed largely as an effort to attract new and expanded high impact data center development to the state.³³ The state legislature’s findings in the amendment conclude, among other things, that “[t]he People’s Republic of China is positioning itself to be the global leader of data centers and is investing in technology to encourage the flow of data toward China instead of toward the United States . . . It is in the United States’ national security interests to limit the flow of data to China and to protect the flow of data and maximize computational power inside the United States.”

Virginia:  On December 16, 2024, the Virginia State Corporation Commission (“SCC”) held a technical conference on the “projected load growth resulting from the increased deployment of hyperscale retail electric customers in the Commonwealth.”³⁴

Not all State-level regulatory activity with respect to data centers is necessarily initiated by the state commission. For example, there is a proceeding currently before the SCC in which Dominion, one of the state’s regulated utilities, is seeking SCC approval to construct a 944 MW fossil-fired “peaker” generating facility that would only operate when demand for power on the system is at its highest.³⁵  Among the numerous issues being litigated in that proceeding is the fact that the state’s 2020 Clean Economy Act requires Dominion to convert to carbon-free power by 2050 and prevents it from building any new fossil-fuel plants until it meets certain energy-efficiency targets.³⁶

Takeaways

The states are aware of the risks and benefits of large scale data center development. The states also largely agree on the biggest challenges—namely the allocation of costs and threats to grid reliability. However, their mechanisms for addressing these challenges reflect each states’ specific concerns, values, and pre-existing concerns related to the electric grid. Texas makes choices based on its generally free market approach and the memory of Winter Storm Uri. South Carolina, long a bastion of traditional utility regulation, is opening its doors to limited retail choice as an alternative to a massive build out of its utility systems. Maryland, which is one of only a few states that imposes utility-like permitting requirements on independent generators, has moved to eliminate that requirement for data center back up power.

As additional states determine how to address this issue, no doubt other solutions will emerge. Similarly, as these mechanisms are tested, they will likely be revised based on experience. For developers seeking to construct large-load facilities, or independent generation to serve then, it is more critical than ever to remain abreast of the changing regulatory landscape.

Authored by Chip Cannon and Porter Wiseman.