Data centers fuel energy debates as lawmakers seek ratepayer protections

With data centers placing an ever-growing strain on the grid, Virginia legislators are introducing measures to ensure residents don’t bear the brunt of rising energy costs caused by the booming industry. However, the proposals are facing stiff resistance.

One bill targeting large electric load businesses has been tabled, while another initially singling out data centers was amended. Lobbyists for the data center industry have pushed back, warning that these measures could hinder economic growth and unfairly single out a sector that, according to Gov. Glenn Youngkin, contributes $9.1 billion to Virginia’s gross domestic product.

Legislators also renewed, but once again failed in a push to shed some light on the proceedings of PJM — the nation’s largest regional power transmission organization. Utility companies, such as Dominion, are voting members of the organization, whose decisions on major transmission projects directly impact costs passed on to customers.

Lawmakers are faced with balancing the economic opportunities brought by data centers with protecting consumers and meeting clean energy mandates, in the face of rising energy production and transmission costs, says Del. Irene Shin, D-Fairfax.

“Virginia has enjoyed relatively flat load growth, and I think right now we’re in that moment of hockey sticking, primarily driven by the data center industry,” Shin says.

Managing demands on the power grid

Shin introduced House Bill 2084, which directs the State Corporation Commission (SCC) to review the rate classifications of phase I and phase II public utilities to ensure fairness to all ratepayers. The bill’s original version, which explicitly required Dominion Energy and Appalachian Power to establish separate rate classifications for data centers, was met with fierce opposition in subcommittee.

The revised bill now leaves the decision about reclassifying customers entirely to the SCC, with no specific mention of data centers.

While data centers are currently paying their fair share under existing utility rate structures, their rapidly growing energy demand “will likely increase system costs for all customers,” according to a report by the Joint Legislative Audit and Review Commission (JLARC). The report suggests that creating separate rates for data centers could shield other customers from rising costs.

Without such measures, the JLARC study projects that utility bills for the average residential customer could increase by as much as $444 annually by 2040, excluding inflation.

Virginia leads the nation in the number of operational data centers. The industry is rapidly expanding in neighboring states. Last year, Duke Energy in North Carolina introduced new rate structures for data centers to address rising power demands.

Before references to data centers were removed from House Bill 2084 last week, Kate Smiley, a spokesperson for the Data Center Coalition, argued that decisions on raising rates for data centers should begin with the SCC, not legislators. She also contended that creating separate rates for data centers would be discriminatory.

“Rate classes should ultimately be established based on load characteristics rather than the business in which the customer is engaged,” Smiley said. “These costs caused by a rate class are driven by its aggregate load shape, the volume of power it consumes, the number of customers served — not the business end use.”

Del. Candi Mundon-King, D-Prince William, pushed back on the notion of discrimination against data centers.

“This idea of poor data centers being discriminated against is really something we should shy away from,” she said. “We have a responsibility to be great partners with people who are investing in the commonwealth, but our first responsibility is to the safety and wellbeing of citizens of the commonwealth.”

House Bill 2027, which failed in a subcommittee vote earlier this month, sought to require new facilities with power loads of 100 megawatts or more — amended from the original threshold of 25 megawatts — to obtain a certificate to operate.

Glenn Davis, director of the Virginia Department of Energy and a former Republican state senator from Virginia Beach, opposed the legislation, arguing it would unnecessarily slow the permitting process handled by the SCC and create unfair competition among businesses for power capacity.

“[The SCC is] going to be picking winners and losers,” Davis said. “How do they decide between two 100 megawatt facilities when only 100 megawatts are available?”

Del. Joshua Thomas, D-Prince William, who sponsored the legislation, cited the JLARC report to emphasize the urgency of placing limits on power consumption. He warned that without constraints, Virginia faces “an unconstrained load environment where we have an 183% increase of load over the next few decades, which is unsustainable.”

Pulling back the curtain on rates

House Bill 2003, which aimed to increase transparency in the voting process for PJM, the regional organization coordinating power transmission and generation for Virginia and much of the eastern U.S., failed in committee last week on a 10-12 vote.

The legislation would have required PJM to publish an annual report detailing the committee votes of its public utility members and to provide a statement explaining how each vote served the public interest.

These votes have significant implications, including determining market rules and the approval of large-scale transmission projects — factors that directly impact electric bills. For example, in 2022, a PJM committee rejected a proposal to freeze prices during periods of high electricity cost, but there was no public record on how utility companies voted.

“As our own energy needs are growing with data centers, rate payers deserve to know that the rate they are paying for their energy needs is not subsidizing large industry,” said Del. Amy Laufer, D-Albemarle, who sponsored the bill.

Laufer drew parallels to the General Assembly’s recent move to live stream and record subcommittee votes, emphasizing the need for transparency at all decision-making levels.

“PJM does publish the upper-level votes, but we know that the policies and proposals voted on at the lower-level meetings have a large impact on what happens at the upper-level meetings, which directly impact 65 million ratepayers,” Laufer said.

Christine Noonan, a lobbyist representing Dominion Energy, expressed concerns that publishing committee votes could discourage open discussions with PJM.

“We want to ensure that this quest for transparency doesn’t hamper collaboration,” Noonan said, adding that any transparency requirements “should apply equally to all entities that either generate [power] or have [power] transmission in the commonwealth.”