Last year, the governor signed energy legislation that expedited energy projects in the state, most notably the Canady’s natural gas plant. Before signage, the House removed requirements that would protect ratepayers from massive energy infrastructure costs driven up by commercial data centers.
In the absence of these protections and heightened concerns about where and how data centers operate in the state, the Senate has introduced three new data center regulatory bills.
Nearly 80 percent of S.C. voters support data centers providing their own energy generation or paying for their own infrastructure costs, as indicated in SCPC’s recent winter poll.
What each bill will do
The S.867 Data Center Development bill, which is already seeing committee hearings, is the most comprehensive and addresses data centers of all sizes. The bill’s goal is to:
- Require the state to issue a permit before a new data center can operate in South Carolina, rather than allowing counties to exercise development authority that could strain the power grid.
- Regulate newly permitted data centers regarding locations, water usage, infrastructure costs, financial assurances, and more.
- Introduce a new targeted incentive structure for the use of brownfield sites.
S.784, which has not seen movement yet, aims to remedy shortcomings from last year’s energy legislation. The focus is on:
- Commercial data centers, the largest of their kind, and the contracts they must participate in.
- Canceling the current tax incentive structure on equipment and electricity for all data centers.
- Heightened requirements to use eminent domain.
Additionally, S.902 has also been filed. The bill is very similar to S.867 but adds language that reverses ratepayer protections. The bill also differs from S.867 by not creating an additional office to regulate and oversee data center permitting or a new incentive structure.
S.867: Comprehensive data center regulations
This bill directs the Public Service Commission (PSC) to determine cost allocation methodologies in a manner that protects the ratepayer:
- The PSC is tasked with only approving rate agreements that guarantee data centers pay infrastructure costs for electrical service, ensuring that the building of new power plants and transmission lines are not paid for by ratepayers.
- The PSC is also tasked with ensuring data centers pay for infrastructure costs directly attributable to serving the data center, capacity costs, and costs associated with maintaining reliability for existing customers.
Utility contracts and subsequent rate agreements with data centers, under the jurisdiction of the PSC, would ensure that energy costs, whether associated with existing or new infrastructure, are paid entirely by the data center.
Self-generation is also permitted under the purview of the PSC. The bill says data centers may utilize self-generation and penalizing it should be avoided. Language in the legislation could be stronger to encourage off-the-grid generation. Private power generation absent of public grid connectivity is the surest way to protect ratepayers from subsidizing data center energy infrastructure.
The Data Center Development Office
This bill establishes a new Data Center Development Office under the Department of Environmental Services. The Office will be charged with issuing permits for any new data center seeking to locate in South Carolina. This will supersede county jurisdiction over the initial approval and location process.
In the permitting process, the Office will assess the infrastructure adequacy of the desired site: evaluating water supply, wastewater treatment capacity, access to roads, and the general suitability of the location.
Data centers will be assigned one of three tiers, and regulations will be heightened based on the demands of each data center. A tier one data center is up to ten megawatts, tier two is between eleven and fifty megawatts, and tier three is over fifty megawatts.
An advisory committee will share term-limited appointments from various branches of state government that will include representation for ratepayers. This committee will advise the Data Center Development Office on streamlining implementation of this bill’s provisions, emerging data center issues, best industry practices, and regulatory updates.
Financial assurances
The bill outlines financial assurance requirements for all data centers. When approving rate agreements, the PSC must identify that data centers will be able to pay for their energy infrastructure needs.
Data centers will also have to prove that they can pay any potential unrecovered infrastructure costs if incurred, including the ability to pay for decommissioning, which is required by the bill.
Water regulations
The newly created Data Center Development Office will set water-use standards for data centers, including requirements for the most efficient available cooling technology. The Office will cap water usage and require regular reporting.
Similar standards will apply to noise, vibration, and light impacts, with buffer and setback requirements to protect surrounding communities.
While data centers consider their water and energy consumption proprietary, the bill requires confidential operational data to be provided to the Office upon request. However, overall energy and water usage will be subject to public disclosure under the Freedom of Information Act.
Targeted tax incentives
The Data Center Development Office will have a list of sites for data centers to choose from:
- Industrial parks with utility capacity
- Previously developed commercial sites
- Brownfield sites, which are known to be abandoned or underused
To encourage data centers to use brownfield sites, tax incentives will be issued for those that choose a brownfield site or a site that requires environmental remediation. Eligible data centers would receive a tax credit against state income taxes equal to 25 percent of environmental remediation costs incurred at a maximum of $5 million per facility. An additional tax credit equal to two percent of total capital investment would also be made available at a maximum of $10 million per facility.
SCPC opposes offering incentive carve-outs for specific industries. However, if data centers can be confined to brownfield sites, the risk to local communities would be significantly reduced. That said, lawmakers must weigh the total cost of such incentives, particularly in the absence of an available fiscal impact statement.
S.784: Commercial data center contracts, incentives, and eminent domain
Eliminating incentives
S.784 aims to reinstate language that was removed from last year’s energy legislation. It would pair well with the S.867 Data Center Development Office bill.
S.784 will eliminate the current incentive structure for computer equipment and electricity purchases, setting the stage for a new and more targeted brownfield incentives program to be put in its place.
15-year contracts for “commercial” data centers
This bill also seemingly establishes a new fourth tier for commercial data centers over 100MW capacity with heighted contractual agreements between them and utilities. Data centers have a wide range of energy consumption; some consume as little as 5MW while others can use upwards of 150MW.
These contracts would be for a minimum of 15 years with stipulations that require unrecovered costs to be paid upon termination.
The SC Policy Council previously recommended that these power purchase agreement contracts be extended to 40 years to cover the payment period of a new natural gas plant.
Going beyond just listing financial assurances, this bill would require that commercial data centers pay collateral to the electric service provider in conjunction with their contract, preventing the ratepayer from being stuck with the bill.
The PSC will have jurisdiction over these contracts and ensure that they apply to additional electricity demand created by the data center, not demand that would have existed anyway.
While S.867 outlines the duty of all data centers to report operational information to the Data Center Development Office upon request, S.784 further stipulates that commercial data centers report water usage to the Department of Environmental Services on an annual basis, which would be crucial if S.867 were not to pass.
Eminent domain
Even though data centers will be required to bear their full energy infrastructure costs in both bills, construction of new power plants and transmission lines may result in the use of eminent domain to service those demands.
This bill provides for a public comment period upon application for new infrastructure projects. Eminent domain notifications and public meeting requirements are heightened under this legislation.
S.902: Third data center bill
This bill resembles S.867 very closely, with the notable omission of two components. Rather than creating a new governmental office for permitting, the Public Service Commission takes jurisdiction over the permitting process. This bill also excludes the brownfield incentives portion.
One glaring issue with this bill is in the PSC duties. Certificates can be issued to data centers who show “That the impact of data center upon the electric grid and existing utility ratepayers is justified, including, but not limited to, the costs of maintaining system reliability and the allocation of fixed costs and capacity cost.”
This language appears to negate ratepayer protections and supersede what the rest of the bill was attempting to achieve. Meaning that somehow if the PSC determined that a data center’s effect on the grid was worth it, they could approve a rate increase to service data centers.
Moving forward with these bills
It’s no secret that this is a very complicated issue with a seemingly infinite number of variables. However, these initiatives remain the point of emphasis for regulation:
- Protecting ratepayers from hikes due to data center consumption
- Repealing the blanket incentive program on computer equipment and energy use
- Contracts for large commercial data centers to ensure they are paying the costs of infrastructure upgrades
- Encouraging off grid self-generated power
- Heightened eminent domain notifications and hearing requirements
All of these bills address some of these issues to an extent.
S.867 is by far the strongest protection for the ratepayer and goes the furthest to ensure that data centers are responsible for paying for their own energy. The bill also encourages on-site self-generated power and creates incentives for data centers to be confined to brownfield sites. The bill also creates a new Data Center Development Office to oversee permitting statewide.
S.784 repeals the blanket incentive program, requires contracts for large commercial data centers, and heightens eminent domain notifications and hearing requirements.
S.902 is very similar to S.867, but differs in weaker protections for ratepayers, tasking the PSC to oversee data center permitting across the state and does not include provisions related to brownfield sites.
The legislature should advance S.784 and determine which of S.867 and S.902 they wish to move forward simply because they are so similar.
If lawmakers advance S.867, they should decide whether permitting authority should rest with a newly created office or remain with the PSC, and carefully evaluate the total cost of the proposed brownfield incentives.
If they move forward with S.902, they should strengthen ratepayer protections to ensure customers are not responsible for financing new infrastructure, including by striking the section referenced above.
Lawmakers ultimately need to advance a proposal that accomplishes the five points above with either a patchwork of bills or combining and simplifying. Either way, a finalized piece of legislation must protect ratepayers fully while avoiding undue regulatory burdens on a new and expanding sector of the economy.
