Fight at the Statehouse

State government controls many of the rules that shape data center deals — utility rates, tax incentives, water policy, and environmental review. This chapter explains how to use those levers.

The most powerful tool at the state level is the rate case. When a utility wants to raise rates, it files a request with the state public utility commission. The public can participate by filing comments and testifying. This matters because data centers use enormous amounts of electricity, and the cost of upgrading the grid to serve them gets spread across all ratepayers. Michigan set an important benchmark by requiring data centers to sign 19-year contracts, pay at least 80 percent of their committed load regardless of actual use, and accept load-shed priority — meaning their power gets cut first in a shortage. Every state should consider similar requirements. The chapter also explains behind-the-meter power, where data centers bypass the public grid entirely using private power sources.

Tax break reform is essential. Most data center tax incentives were passed with little analysis and no expiration date. The chapter lays out six reforms: require public disclosure of all incentive agreements, add clawback provisions that take back tax breaks if promises are not met, include sunset clauses so incentives expire automatically, mandate independent cost-benefit analysis before any new incentive is approved, give local governments the right to opt out of state incentive programs, and freeze new incentives until existing ones are audited. Illinois froze its data center tax incentive program as a model.

Water is a growing crisis. Texas data centers used 25 billion gallons of water in a single year. The chapter calls for mandatory water use reporting, water impact studies before approval, and drought protections that restrict data center water use during shortages.

State environmental review laws can require impact studies even when federal law does not apply. Attorneys general can investigate deceptive practices and enforce consumer protection laws against misleading developer claims.

Finally, state elections matter. Some states elect their public utility commissioners, giving voters direct control over rate decisions. State legislators and governors set the tax and regulatory framework that either invites or restrains data center development.