Two guests join the podcast to discuss the increasing focus by state lawmakers on data centers, and concerns about how their massive consumption of electricity may affect the rates paid by consumers.
There are more than 5,000 data centers in the U.S. and thousands more on the drawing board. The centers are big consumers of energy to power the racks of servers and big consumers of water to cool those systems. Data centers consume more than 4% of electricity in the U.S. with some studies estimating they may consume as much as 12% by 2030.
On this episode, we discuss data centers and their effect on the energy system with Dan Diorio, vice president for state policy at the Data Center Coalition, a trade group for the data center industry, and Alex McWard, who tracks energy issues, including data centers, for NCSL.
State lawmakers have long been aware of data centers and some of their impacts, but the focus on data centers has increased considerably in the last couple of years, McWard says. He also discussed changing attitudes toward data centers and concerns about energy consumption and how it could affect rates paid by consumers.
Diorio explained the industry's perspective, pointing out that our society now runs on digital information, whether it's watching a football game or making a credit card purchase, and data centers are the backbone of that system. He also pointed to studies indicating that the industry is pulling its weight in terms of paying for the additional electrical load it's putting on the nation's utilities.
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ES (00:12):
Hello and welcome to “Our American States,” a podcast from the National Conference of State Legislatures. I'm your host, Ed Smith.
DD (00:20):
Well, data centers are everything we do every day. It's how we work, it's how we learn, it's how we communicate. It's our essential functions that we rely on. It's our banking and financial records. It's credit card transactions, it's electronic health care records.
ES (00:35):
That was Dan Diorio, vice president for state policy at the Data Center Coalition, a trade group for the data center industry. Diorio is one of our guests on this podcast, along with Alex McWard, who tracks energy issues, including data centers, for NCSL.
There are more than 5,000 data centers in the U.S. and thousands more on the drawing board. The centers are big consumers of energy to power the racks of servers and big consumers of water to cool those systems . Centers consume more than 4% of electricity in the U.S. with some studies estimating they may consume as much as 12% by 2030.
State lawmakers have long been aware of data centers and some of their impacts, but the focus on data centers has increased considerably in the last couple of years, McWard says. He also discussed changing attitudes toward data centers and concerns about energy consumption.
Diorio explained the industry's perspective, pointing out that our society now runs on digital information, whether it's watching a football game or making a credit card purchase, and data centers are the backbone of that system. He also pointed to studies indicating that the industry is pulling its weight in terms of paying for the additional electrical load it's putting on the nation's utilities.
Here's our discussion starting with Alex McWard.
Alex, great to have you back on the podcast.
AM (01:58):
Yeah, thanks for having me, Ed. Great to be back.
ES (02:01):
I think a few years ago if I asked somebody what a data center was, I’d get kind of a blank look and now I think everybody knows what data centers are. The last couple of years, the attention to data centers in the media have made it a pretty common knowledge. When you talk with legislators around the country about energy issues as part of your role at NCSL, I'm sure that many of them have known what data centers are, but I wonder when the energy consumption that data centers use, when that first became an issue that was of some concern for state legislators.
AM (02:37):
So ,this really started to emerge as a concern about two years ago at the start of 2024. For our members, like you said, data centers, they've been around for a while at this point. Their energy requirements are known to a certain extent with data centers accounting for around 4% of total energy consumption in the U.S. at the start of 2024. However, at this time there's this realization that with the huge expansion of AI, cryptocurrency and cloud computing, we're really going to see the number of data centers increase drastically, and that's what's really going to drive up energy demand at this time. In 2024, we started to see some legislation emerge addressing data centers and energy, but it wasn't tackling the issue as directly as we're seeing today. So ,for example, many states were offering some sort of tax incentives such as rebates or exemptions for certain data center equipment. And then legislation at the time started to include energy efficiency upgrades as technology eligible for those tax incentives for data centers. Additionally, at the time, some states were looking at easing regulations to facilitate the use of onsite backup generation for data centers. It wasn't anything significant compared to today, but it was clearly the start of an emerging trend.
ES (03:53):
So, do you think attitudes by legislators toward data centers--their desirability, how much they should be encouraged--have those attitudes changed in the last couple of years?
AM (04:05):
The concerns around data center and energy has really only grown since they first started to emerge in ’24. And so, we saw a lot more legislation targeting the energy impact of data centers. This past legislative session, we tracked around 70 bills introduced in 2025 concerning the energy usage of data centers. Examples of legislation include setting reporting requirements for data centers regarding their energy and water usages. We're still seeing some of those tax incentives for energy efficient technology. But what has really emerged as a topic of interest for legislators has been utility rates for data centers. Data centers, their significant energy requirements have resulted in concerns about how this energy demand may affect unrelated electricity customers such as residential households and so many states have considered specific payment structures for large loads like data centers to prevent those costs from shifting on to unrelated customers. So, for example, Maryland last year enacted legislation requiring investor-owned utilities to submit a specific rate schedule for large load customers to prevent residential customers from facing the costs associated with those large loads interconnecting to the grid.
AM (05:18):
And we also saw similar legislation enact in California, Oregon, and Virginia last year. So, it's very likely we'll see states continue to address this issue moving forward in the new year. Another significant bill enacted this past year regarding data center energy access was in Texas last year. Texas enacted Senate Bill 6 to set new rules for the interconnection of large loads larger than 75 megawatts. So that includes a lot of data centers, and these large loads must pay an interconnection fee that will cover their transmission screening studies. So, seeing what infrastructures needed to interconnect into the grid, a mandatory demand management program applies to these large loads. And so, this program allows utilities to disconnect eligible loads during firm load shift events and mandates the installation of shutoff equipment for large loads as a condition of their grid or connection. So, this basically means that when energy demand is too high and the grid is strained, these large loads can be easily disconnected to relieve the strain on the grid. So, as you can see, a lot more legislation enacted this past year, specifically targeting the energy consumption of data centers as that's kind of really become the main concern here.
ES (06:37):
From what I've read, Texas has had just an enormous number of proposed data center projects. Whether those all come to fruition, of course, is another matter. Let me ask you another thing about states in their energy goals. Most states have some sort of energy plan, and those I know vary a great deal from state to state, but to what degree do these projects affect that and how do they affect the renewable and clean energy aspects of those plans?
AM (07:08):
So, this is obviously a big concern for a lot of states. Around 30 states have some sort of active renewable or clean energy target with about 14 states aiming to reach 100% renewable or clean energy by 2050 or even earlier. And so ,when a lot of these energy standards or targets were set, energy demand had been relatively stagnant for a while. But now with energy demand rising, the task of bringing on enough new energy generation to replace retiring fossil fuels is a lot more daunting. And so, states are probably going to have to react and work with their energy companies and data center developers to tackle this issue. And so that may be states extending their timelines for energy targets past 2050 or perhaps setting onsite generation requirements for data centers or even interconnection requirements like we saw in Texas to help relieve the strain on the grid.
AM (08:04):
As is always the case in the energy sector, new technologies are always emerging, so states may need to explore more diverse energy options. And a great example of that was last year New York introduced legislation that would have required new data centers in the state to incorporate thermal energy networks. Thermal energy networks are these kind of neighborhood-scale systems of underground pipes that connect multiple buildings to a shared source of energy like geothermal, which then provides heating and cooling to all those buildings. Demand and resources vary by state, but the bottom line is that for a lot of these states, their energy targets were already considered ambitious a few years ago, but the emergence of new large loads certainly is going to make that much easier.
ES (08:50):
Yeah, that's a great point. So, we're at the beginning of 2026. I want you to dust off your crystal ball and tell me what you think is coming down the pike here from states in terms of legislation related to data centers over the next session, two sessions.
AM (09:08):
Well, one thing I can tell you for sure is that data centers will continue to be a big policy issue moving forward in 2026. However, the direction states will move could vary quite a bit. For a while, many states were incentivizing data center development, and this is still very much the case, as in July, Kansas became the 37th state to offer some sort of data center incentive. On the other hand, … states concern about the energy usage and water usage of data centers is leading to some pushback. And a great example of this was in Virginia and November, they just had their election, data center development was one of the primary points of contention in that election. And of course, Virginia is a unique example, as has the highest rate, highest concentration of data centers in the country. But regardless of whether a state is looking to increase data center development or not, they're likely going to be paying greater attention to the energy usage of their data centers. I do think most likely what we're going to see states do is continue to consider specific utility rate schedules for data centers and other large loads. The price of electricity is the primary concern for most legislators’ constituents. So ,regardless of state energy or economics, not wanting data centers to ramp up electricity rates is something I think most legislators will agree on.
ES (10:29):
Well, that is great, Alex, thanks very much for giving us the landscape there legislatively. And I have a feeling we'll be talking about this subject again because as you noted, data centers are doing nothing but increasing. So, thanks a lot. Take care. Of
AM (10:44):
Course. Thank you, Ed.
ES (10:47):
I'll be right back after the short break with Dan Diorio
Speaker 4 (10:53):
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ES (11:25):
Dan, great to have you on the podcast.
DD (11:29):
Thanks so much for having me here, Ed, and thank you for all the work that you and NCSL do to support state legislatures.
ES (11:36):
Well, we appreciate that. And as an NCSL alumnus, I know that you're very familiar with that work, so thank you for that. So ,let's start with where you're working now. Tell us a little bit about the Data Center Coalition and what your role is there.
DD (11:52):
Sure. So ,the Data Center Coalition or DCC, we're the national membership association for the data center industry. So, our members are leading data center owners and operators as well as companies that lease large amounts of data center capacity. I'm vice president of state policy for DCC. So ,in that role, I lead all of DCC’s state-level advocacy work, which is primarily with state legislatures. And I also, most importantly, I think serve as an information resource. We're an advocacy organization, but we want to be a source of information about the industry for all stakeholders, whether that be state legislators, whether that be business organizations, whether that be utilities, regulators, you name it. And I think that's a really key function for DCC today.
ES (12:36):
Well, indeed, that's why we're talking today because this podcast, we hope, serves as a source of non-biased information about a whole bunch of different public policy issues. And that's what we want to get into. You'd have to live under a rock, I think these days and never read any news to not hear a lot about data centers and the demand they put on the energy grid. Why don't you give us some context about the role data centers play in state economies and how legislators might think about balancing growth with energy needs?
DD (13:08):
Well, data centers are everything we do every day. It's how we work, it's how we learn, it's how we communicate. It's our essential functions that we rely on. It's our banking and financial records. It's credit card transactions, it's electronic health care records, state and local governments, 911 geolocation services, national security defense, you name it. Basically anything. And everything really requires access to digital infrastructure today. And it's important to remember that as our lives become increasingly digital data centers play an essential infrastructure role in supporting our everyday lives. I like to think of it this way, which is that, and this is probably the most relatable way to think about it, the average household has 21 connected devices, laptops, and phones, of course. But we have watches now. We have smart TVs, possibly multiple smart TVs. If you've cut the cord, smart thermostats, ring doorbells, lights, garage doors. My oven is connected to Wi-Fi for some reason.
DD (14:07):
I can preheat it when I'm out on the road and I need to get the chicken nuggets back in the oven when I get home from soccer practice just to make sure the kids are fed before bedtime. So, it's a really useful tool. As a society, we are going to create twice as much data in the next five years as we did in the previous 10. So, data centers are that digital infrastructure that supports everything we do. And really, data centers are bringing significant economic value to local communities. They create strong business ecosystems where they go. For every one job in a data center, six jobs are supported elsewhere in the economy nationally. These are high wage jobs. These are jobs for construction professionals, skilled tradesmen, service professionals as well. All told the U.S. data center industry supported 4.7 million jobs in 2023 as well as contributing $162 billion in federal, state and local tax revenue in 2023. This is important revenue that state and local governments especially can use to reinvest in things like schools and infrastructure and services, which are important. Local priorities.
ES (15:13):
Well, I am astonished sometimes when I look at my Wi-Fi connections in the house, and you're right, a couple dozen different things connected, including the thermostat and watches and all that sort of stuff. So that data demand is, I think, probably pretty real to most people. But let's talk a little bit about the energy demand and the consumption by data centers. I think we've seen more and more concern in the public square has started to emerge in the last couple of years about this. And can you talk a little bit about why there's all this attention to data center energy use and why it's increased the recent years?
DD (15:49):
Well, certainly demand for digital infrastructure is on the rise, and that's measured in megawatts typically. McKinsey tells us that U.S. data center demand is going to reach 80 gigawatts by 2030, which is up from 25 gigawatts just a year ago in 2024. And again, that's all being driven by demand for services, demand for innovation and technology from consumers and businesses. Data centers are not just AI, they are, of course, as I mentioned, everything we do every day and all the innovative technologies we rely on. But AI is a demand driver as well and has applications throughout the economy, not just chat GPT. We know companies are using it to optimize the energy grid. We know companies are using it to detect water leaks and systems. Companies like Visa, which is a member of DCC as they own two data centers, including one in Denver, they've used it for years to detect billions of dollars in credit card fraud.
DD (16:39):
All of that requires energy. After about two decades of flat load growth, we are now in a time of high demand, and that demand is being driven of course by the need for digital infrastructure, but also advanced manufacturing coming back on shore. We have continued electrification of vehicles, homes, businesses and industries as well as emerging hydrogen production. And that's come from several different academic sources like Lawrence Berkeley National Labs that have acknowledged there are several different growth drivers on the system, and these are economic growth drivers as well. And all of that requires, I think, new investments in generation, in transmission infrastructure. It requires the maintenance that I think we haven't done for the last 20 or so odd years and ensuring that our infrastructure is reliable and resilient. One of the biggest cost drivers right now is hardening infrastructure against natural disasters. As we know out here in the West, it's wildfires especially.
DD (17:32):
And as we see new large loads coming onto the system, we are seeing them actually help to put downward pressure on rates. Areas with higher low growth saw lower rates overall. According to Lawrence Berkeley National Labs, we've had utilities in Pennsylvania, utilities in Georgia, utilities in California, utilities in Kansas acknowledge that data centers and the potential of new large loads coming onto the grid can actually help drive down costs for other consumers. So, as we continue all these important discussions about building out our grid and energy use, we want to ensure that we have engaged stakeholder conversations and we're committed to doing that as the data center industry, engaging with utilities, regulators, other stakeholders to ensure we have the information and they have the information they need to make those prudent new investments in the grid.
ES (18:21):
Yeah, I think that the increased demand that you're referring to, in fact, I was reading a story the other day, I think 80 gigawatts is about what Texas consumes, and that's a big place. That's a lot of energy. So, with that in mind, what do you see as the most promising technologies approaches to address the energy consumption on data centers? I know I've read things about data centers creating their own power supplies, even I think Three Mile Island, putting one of those units back online to provide power. So, what are the different approaches the data centers are using?
DD (18:59):
Well, and just to level set a little bit, data centers are a far more efficient way of doing all the computing and processing we need. I think that's a key level set to understanding the energy conversation. From 2010 to 2018, when we saw the migration over to large scale data centers, computing and processing and computing output rose 550%. And during that same time, energy consumption only rose 6%. So ,by aggregating all these computing and processing and storing demands, data centers are able to utilize economies of scale to achieve significant efficiencies. But I think the data center industry is leaning in significantly throughout the country in a couple of different ways. First and foremost is data centers are being proactive and taking steps to protect rate payers and to ensure that costs are allocated appropriately, whether it be through unique agreements like Amazon has just done in northwest Indiana with utilities there to ensure that they are paying directly for the infrastructure that is needed to service their facility.
DD (19:57):
And rate payers are shielded for many undue costs or whether it's leaning in as we have in DCC in different regulatory proceedings around large load tariffs and rate classes and really leading into established principles as far as how do we craft policies that are flexible because this is an industry that's not monolithic by any means. There are different sizes and structures. So ,how do we craft policies that are flexible, that are durable over the long term and account for other areas of load growth? And then how do we balance that all with economic development and ensuring that the U.S. continues to lead the world in digital infrastructure? The data centers are also utilizing, as you mentioned, behind the meter solutions, looking to bring their own energy supplies where appropriate and see if maybe that can result in faster interconnection or speed to market. And then you have data centers co-locating with existing generating facilities, as you mentioned, Three Mile Island. And when they're able to do that, they invest their private capital into maintaining that facility, upgrading that facility, upgrading capacity at that facility really to the benefit of the overall system. And so, it's both a short-term acknowledgement of how can we play a role in addressing short-term constraints while we also help provide that necessary certainty for long-term investments in the grid.
ES (21:16):
So, we're talking to state legislators, of course, state legislative staff, and I think just about every state has introduced legislation of some sort and it differs from place to place related to data centers. And I'm just wondering, what are you seeing from states specifically to respond to the rising energy demand? What are the different approaches states are taking?
DD (21:39):
Well, certainly states are taking, I think, unique approaches, as you mentioned that vary. But there are a couple of strong themes of course. One is cost allocation and rate payer protections. And again, that's something that you see in the industry really lean in on and help provide guiding principles that I think can craft good policies in those states and will continue to do that. I think we're emphasizing that there's no one size, one size fits all solution to this that states should be looking to encourage a variety of different practices. Things like bring your own generation voluntary, bring your own generation or co-locating with existing generating facilities. So, it's important that states provide flexible solutions and recognize that this is an industry that's in innovating and pursuing this innovative partnerships already, and you want to ensure that you continue to have an open and flexible regulatory process that allows the industry to continue to do that.
DD (22:28):
Another strong issue, I think that's perhaps along with energy is water. There's a lot of concern about data center water use, and it's important I think to stress that the data centers are not only committed to responsible energy use but also committed to responsible water use. And the reality is, is that data centers are amongst the most efficient water users within the economy. No decisions about which cooling technology, whether it be air based cooling or water-based cooling is made in a vacuum. We work closely with local infrastructure providers. We evaluate things like humidity and climate to determine what's the best and most efficient way of doing cooling. And we also utilize things like recycled water, infrastructure treated wastewater where available, where that infrastructure is available to do that. In Santa Clara, California, for example, the heart of Silicon Valley, 65% of data centers there are all in Santa Clara's recycled water system.
DD (23:21):
You have Google in Douglas County, Georgia using treated wastewater for their cooling. More and more data centers are using advanced technologies like closed loop systems to ensure that they're using water efficiently. And context is key. 83% of data centers in Virginia, which is the largest market in the world for data centers, are using as much if not less water than a large commercial office building. It's from a joint legislative audit review commission report that came out in December of 2024. And I think that's a telling stat to show that data centers are efficient water users. That report also said data center water use is sustainable. And just to kind of finish, it out, to put it again, I think more in relatable terms, data centers and the data center industry uses far less water than golf courses throughout the country. And I think of a place like Arizona in which this is the desert. They obviously have water concerns down in Arizona and in Maricopa County. We know that data centers are using about collectively 900 million gallons of water a year. And then we know golf courses in Maricopa County use 29 billion gallons of water a year. So that context is key. And I think the data really shows that data centers are using water sustainably. But all of this is to say, again, that we'll continue to be an engaged stakeholder with legislators throughout the country and ensure, again, being that information resource for legislators as they consider policies in 2026.
ES (24:45):
Well, I try never to complain about brown grass when I'm playing golf because I keep that in mind. But in all seriousness, the cooling issue is a serious one that I think is often not as prominent in the conversation is energy usage. How about your organization? How does the DCC, how's it working with the legislators? How's it working with stakeholders to try to address these issues?
DD (25:10):
Yeah, it really is. I think coming in and trying to provide all the information that are provided here today to that level setting, provide that context, I think demystify the industry a little bit if you'll as well. I think a lot of that is discussing demand drivers. Right now, I think there's, again, concerns that data centers are just AI and the picture is far more complicated than that. It's obviously the data centers being built today are mostly for cloud infrastructure. 95% of Fortune 500 companies operate on the cloud. So that's a significant growth driver right now. AI will be and is certainly, but it's not the be all end all. So, it's a lot of, I think understanding and helping engage stakeholders to understand the demand drivers for the industry. And I think helping them understand the economic value that data centers bring. These are significant large capital investments, billions of dollars now they generate a significant amount of tax revenue for local communities.
DD (26:09):
We know in a place like Loudoun County, for every $1 that data centers utilize in public services, they give $26 back to Loudoun County. This is Loudoun County, Virginia. It's a significant part of Loudoun County's operating revenue that they get in every year. And again, it enables them to keep taxes low for their residents and also reinvest in schools and other services. So, it's educating on those economic benefits, the reliance on skilled trades as well. We need electricians, plumbers, pipe fitters, steam fitters, HVAC technicians. There are tremendous opportunities for development. Something the industry is trying to support throughout the country, establish pathways that don't need a four-year degree to get into the data center field, whether it be on the skilled trade side or directly in the data center. And these are really good paying jobs. And I think it's educating as well on how the industry is being both a responsible partner in communities, but also a responsive partner in communities as well, working with communities to answer these questions, working with communities to address concerns, working with communities to figure out how they can continue to invest in those communities and improve their infrastructure.
DD (27:18):
So, I think you're seeing this natural evolution is how the industry, I think has risen to prominence within the collective consciousness, especially for state legislators. And as DCC, we're leaning in to help legislators understand how the industry is addressing all of these issues that they're seeing.
ES (27:35):
Well, I'm sure that there's going to be a great deal more debate going forward on this issue. And let me ask you, as we wrap up here, Dan, anything else you'd like to share with legislators, legislative staff, other people listening to the podcast?
DD (27:49):
Yeah, I think I would just emphasize again, especially as we look at cost allocation, data centers are fully committed to paying our full cost of service for electricity. And we are leaning in to continue doing that throughout the country. There have been studies that have come out, again showing that the industry is paying its full cost of service, whether it be in Virginia, Arizona. There's a recent study that came out … about Amazon data centers, about how they are paying their full cost of service, and they're helping to improve infrastructure throughout the systems and where they operate for all rate payers, all users on the system. So, the industry will continue to lean in, they'll continue to be a responsive partner there, but also, they will continue to be an economic driver. And I think as we look at the industry for an economic driver in local communities, it's important to look at the macro picture as well, which is that data centers and digital infrastructure is really an essential component of maintaining US global competitiveness.
DD (28:46):
We're the world's leader in digital infrastructure right now, and we need to maintain pace with other countries that are building out rapidly. So, it's an essential component of economic competitiveness on a global scale. But then lastly, as our lives are increasingly digital, it's all the more important that our data is stored here, safe and securely domestically. So, in that sense, it's also a national security imperative as well. We want our data stored here, we want it stored close by. So, it's important to continue building out digital infrastructure to meet the demand for all of the digital services we rely on every day.
ES (29:24):
Well, Dan, that's a great explanation of where the industry is, and thanks so much for sharing your perspective on this. Take care.
DD (29:33):
Thanks, Ed, you too, and appreciate the opportunity.
ES (29:38):
You've been listening to Dan Diorio from the Data Center Coalition and Alex Ward from NCSL, discussing data centers and their effect on the energy system. Thanks for listening.
Search for NCSL podcasts wherever you get your podcasts. This podcast, “Our American States,” dives into some of the most challenging public policy issues facing legislators. Our occasional series, “Across the Aisle,” features stories of bipartisanship. Also check out our special series, “Building Democracy,” on the history of legislatures.