Data Centers
States Have Entered the Data Center Chat
States spent much of the first year of the data-center boom watching it happen.
Governors celebrated investment announcements. Economic-development agencies offered incentives. Utilities described enormous new electric loads as an opportunity.
When residents asked who would pay for the power lines, where the water would come from or what would remain if a project failed, the answers were usually studies, task forces and promises that the industry could police itself.
That period is beginning to end.
Texas and North Dakota, two states that have aggressively welcomed industrial growth, are now moving beyond the question of whether data centers should be built. Their lawmakers are beginning to ask what companies must prove before they build, what protections should be mandatory and who remains responsible after the computers leave.
It is an acknowledgment that a data center is not merely a building, but a system of power plants, transmission lines, substations, pipelines, wells, roads, fiber, backup generators and public financing. State policies are starting to catch up with that scale.
Texas starts sorting the queue
Texas has provided the clearest example. The state built a new ERCOT process called Batch Zero to study proposed electric loads of 75 megawatts or more together. The process was supposed to separate credible projects from overlapping applications and speculative requests while determining what the grid could reliably serve.
The queue made that work unavoidable. ERCOT had accumulated more than 474 gigawatts of large-load requests across more than 1,800 projects. Roughly 90 percent of the requested load came from data centers. Together, the proposals represented more than five times the most electricity Texas has ever used at once.
After months of treating that demand as a planning challenge, Gov. Greg Abbott, and in the face of growing protests, he ordered state regulators and ERCOT to audit every data center advancing through the interconnection process. Projects were asked to document ownership, power requirements, onsite generation, water consumption, cooling systems, tax incentives and plans to protect surrounding communities.
ERCOT suspended its classifications and missed its first deadline. It has since notified utilities of provisional classifications, but inclusion remains conditional. Projects may still have to pass verification, repair deficiencies in their technical models or persuade regulators to grant an exception. Some will receive another opportunity to qualify. Others will wait for a future process.
Water exposes the same problem
The electric audit arrived as Texas lawmakers were confronting the industry’s other essential resource.
Texas already hosts almost 200 hyperscale data centers. Existing facilities remain a small share of statewide water use: 81 operating sites reported consuming about 1.3 billion gallons during the most recent reporting year. But the statewide percentage can conceal a serious local problem, especially where industrial wells sit outside municipal systems and groundwater-conservation districts.
The state also cannot say with confidence how many data centers exist, where all of them are located or how much water proposed facilities will consume. Texas state agencies contacted 377 facilities for a mandatory survey but acknowledged that the list was incomplete.
But Texas entered the AI buildout already dealing with significant infrastructure shortages that predated it. The state water plan is already millions of “acre-feet” short of projected need. Its electric grid is trying to absorb a historic queue of large loads. Data centers did not create either deficit, but their speed and scale are forcing lawmakers to confront both.
Google—which has tens of billions at stake in Texas—described hundreds of millions of dollars committed to public water and wastewater projects. QTS pointed to closed-loop cooling and pledged substantial investment in Texas water infrastructure. A West Texas developer proposed building a pipeline and treatment plant that would deliver one million gallons of fresh water each day to a public authority.
Lone Star State lawmakers are now considering a variety of fixes. They include whether disclosure, efficient cooling, drought planning and direct infrastructure investment should become conditions of entry. The emerging standard is simple: A company that can’t document and mitigate its demands should not expect automatic access to Texas growth, officials say.
North Dakota follows the system
North Dakota lawmakers reached the same debate from another direction.
The state has 28 data centers operating, under construction or planned, representing nearly 4,000 megawatts of disclosed demand, slightly more capacity than the state’s existing coal fleet. Developers told lawmakers that new customers can finance substations, strengthen utilities and produce credits for households.
Some have. Applied Digital’s Ellendale campus generated about $38 million in utility profit-sharing over roughly three and a half years. But another large data center load produced about $32 million in regional congestion charges over seven months. The two results demonstrated how quickly the promise of ratepayer benefit can turn into ratepayer exposure.
The state’s hearing also pushed the discussion beyond approval and operation to abandonment. North Dakota maintains an extensive reclamation program for coal mines, backed by inspections and hundreds of millions of dollars in financial security. It has no comparable system for data centers.
Applied Digital estimated that removing one standard building could cost about $90 million. A bond supporting that cleanup could cost the company more than $2 million annually. But North Dakota is asking: What if these buildings are abandoned and nobody steps up to reuse them?
Read More: North Dakota Lawmakers Confront the Systems Behind the Data Center Boom
New York and Pennsylvania
New York and Pennsylvania have moved past studying the data-center buildout and started using executive power to control it. New York Gov. Kathy Hochul imposed a temporary statewide pause covering new or expanded data centers capable of consuming at least 50 megawatts.
Her executive order directs the Department of Environmental Conservation to hold incomplete applications for discretionary state permits while New York prepares a statewide environmental review of data-center energy demand, water use, air quality, noise and effects on disadvantaged communities.
The order also directs state agencies to consider upfront developer contributions for grid and other infrastructure improvements.
Pennsylvania Gov. Josh Shapiro took a different route and made the state’s development standards legally consequential. Under an executive order, developers proposing facilities with peak demand above 25 megawatts can receive rolling state permit review only after declaring their intent to comply with Pennsylvania’s GRID requirements, meeting with environmental regulators and signing an enforceable consent agreement.
Qualifying projects must also demonstrate consistency with local plans and obtain municipal approvals before permits are issued. Developers that refuse the agreement lose the streamlined review and must secure local approvals, water authorizations and a complete package of state permits before the Department of Environmental Protection begins processing the project.
Shapiro also removed data centers from Pennsylvania’s fast-track permitting program, prohibited state agencies from using nondisclosure agreements for the projects and tied the state’s data-center equipment tax exemption to compliance with the GRID requirements.
Solving the problems before they happen
The common problem is not that data centers consume resources. Every major industry does. The problem is that projects measured in billions of dollars and gigawatts arrived before governments had decided how to measure their effects.
That first phase belonged to developers. The next one is beginning to belong to lawmakers, regulators and the communities being asked to host the system.