As data center construction grows at a staggering pace, so too does a state-level push to compete for the sector’s business — and shield customers from higher energy costs.

State legislatures introduced nearly 200 bills targeted at data centers this year. That’s nine times more than were proposed in 2024, according to an analysis by the Center on Global Energy Policy at Columbia University and Carbon Direct, a carbon management software and advisory firm. More than a dozen were enacted into law, many of which either offer tax breaks to data centers or make them pay for any power-grid upgrades needed to serve them.

Rory Jacobson, head of policy for Carbon Direct, said he expects more state action next year. The analysis noted that President Donald Trump’s December 11 executive order aimed at blocking states from regulating AI specifically exempts laws relating to “AI compute and data center infrastructure.”

“We’ve barely scratched the surface on this new world of data center and energy use policy,” Jacobson said. “Through the breadth of bills we can see that state lawmakers are openly grappling with fundamental questions: How do we balance economic growth with grid stability, protect ratepayers while accommodating unprecedented energy demand, and ensure transparency around environmental impacts?” 

Affordability is bipartisan

Consumers’ frustration with rising costs of living, including groceries, insurance, and especially utility bills, has pushed affordability to the forefront of American politics. Both Republicans and Democrats are promising to bring costs down, so it’s no surprise that ratepayer protections were a bipartisan effort at the state level. 

Federal lawmakers are similarly scrutinizing whether AI data centers are driving up residential utility bills. Just this week, Democratic Sens. Elizabeth Warren (Mass.), Chris Van Hollen (Md.) and Richard Blumenthal (Conn.) opened an investigation into seven hyperscalers: Google, Microsoft, Amazon, Meta, CoreWeave, Digital Realty, and Equinix.

A study by Lawrence Berkeley National Laboratory this month found that data centers likely helped reduce average retail electricity prices in recent years by spreading the costs of power grid upgrades across more customers. However, it’s unclear whether that trend will continue as data center’s energy demands are forecasted to skyrocket in the coming years. In PJM, a large increase in power prices has already been linked to data centers.

For now, states are leading efforts to control costs. California, New Jersey, Oregon, and Minnesota as well as the GOP-controlled Texas and Utah all enacted laws aimed at ratepayer protections. 

Oregon and Minnesota directed state energy regulators to create a separate tariff rate for large power users so they cover the costs of electricity, transmission, distribution and other services built to serve them. And both California and New Jersey directed state energy regulators to study the effects of data centers on electricity costs. 

Meanwhile, Utah created new pathways for data centers to secure power, including by sourcing their own, as long as the developers themselves pay for it. Utilities in the state will have 90 days to evaluate the impact of a large load request on its infrastructure, and determine whether it can meet the demand without significant investments. If it can’t, the new law allows the data center to seek out its own energy supply, either with a grid connection or behind-the-meter.

Red tax breaks, blue environmental protections 

Mainly GOP-led states enacted incentives to attract data center business, while only Democratic-led legislatures have so far addressed environmental issues like water use.

Roughly three quarters of the more than a dozen laws enacted this year provide tax incentives or other benefits for locating in a state. Republican-controlled states including Arkansas, Kansas, and Kentucky extended or increased sales or use tax exemptions for data centers. Indiana and West Virginia created favorable zoning and fast-track permitting processes for data center construction. 

Democratic-led states were more concerned about the environmental impact of data centers. Minnesota, where Democrats control the governorship and state Senate, mandated that utilities can’t delay a state-wide goal for carbon-free energy by 2040 to serve data centers. 

The law also created a stricter review process for projects that plan to use more than 100 million gallons of water each year. Large-scale data centers can rival the water use of small cities, but the exact amount often isn’t disclosed by local utilities or the companies. That said, the Oregonian in 2021 reported that Google used a combined 355 million gallons of water across several data centers. (The figure was disclosed in records the city turned over to the news outlet as part of a legal settlement.) Google has two more data centers under construction in the area and is investing $28.5 million to upgrade the local water infrastructure for all residents.