It’s a staggering statistic: Around 70% of the world’s internet traffic flows through Virginia. The state’s data centers, some of which feature hallways nearly a mile long with thousands of thrumming servers on either side, make possible the billions of retail transactions, videos streams, and artificial intelligence queries that happen around the world each day.
But as more data centers are built to accommodate AI and other data-intensive processes, energy demand is expected to skyrocket. A single hyperscale data center can use the same amount of energy as a large city, and the stress this is placing on local power grids is expected to drive up energy costs for residents in Virginia—and around the country.
“What we are projecting, with the contracts that are already in place, is that the energy demand in Virginia will almost double just because of AI and data centers,” says João Ferreira, a regional economist who worked on a recent report about data centers by the Virginia Joint Legislative Audit and Review Commission. “That, of course, will impact all the electricity ratepayers, because we will end up paying more for electricity.”
Virginia is an enormous energy importer
This exploding demand is especially burdensome for states serviced by PJM, a regional transmission organization serving Virginia, 12 other states, and Washington, D.C. The organization, the largest of its kind in America, coordinates the movement of power from company to company and state to state. Virginia imports more energy than any other state—50.1 million megawatt hours, or 36% of its total energy supply, as of 2023—so the expansion of the state’s energy needs are expected to reverberate throughout the PJM region.
A recent report by the Institute for Energy Economics and Financial Analysis finds that ratepayers in other states will end up paying for the infrastructure that transports energy to data centers. West Virginia, which the report uses as a case study, could pay an estimated $440 million for two new energy transmission lines, despite having no data center industry of its own.
These transmission lines—called the Mid-Atlantic Reliability Link and Valley Link—propose to bring energy from power plants in Pennsylvania to Virginia and from those in West Virginia to Maryland, respectively. These lines are still proposals, rather than ongoing construction projects. Still, they raise concerns because all ratepayers in the region will pay for the lines, passing hundreds of millions of dollars onto taxpayers in each state.
When utility companies build transmission lines and other infrastructure, the cost is spread across all ratepayers in the region. The assumption is that these lines provide benefits, like reliability of electricity, to everyone, so everyone should pay for them. But the large data centers powering AI programs upend this logic, says Cathy Kunkel, author of the recent report and energy consultant at IEEFA. “It’s just so enormous and we’re really talking about building infrastructure that would not be needed if not for the data centers,” Kunkel adds.
A new model of electricity demand
While data centers and other internet infrastructure have been powered by sources across state boundaries for decades, concerns about residential ratepayers’ burdens are more intense than ever due to the mismatch between the modern demands of the energy sector and the legal framework governing it—much of which was developed decades ago, when our energy needs were quite different.
“Everybody gets electricity delivered from some company that has a monopoly on delivering electricity within that geographic area,” says Ari Peskoe, Director of the Electricity Law Initiative at Harvard Law School. “Even though their prices are heavily regulated and their profit margins are regulated as well, they still want to grow their business.”
The way that these businesses grow in this regulatory environment is by building out their physical infrastructure, which guarantees them a certain rate of return. The larger the company and the more infrastructure they manage, the more money is allowed to flow into the business.
Hidden subsidies
With this traditional model of regulated growth, data centers are a windfall. Their large size and energy needs means substantial infrastructure must be added to the grid, and energy companies do their best to attract data centers to the regions they serve.
Peskoe has found that confidential deals often take place between data centers and utility companies, providing rates that are not as transparent as typical rate-setting processes.
“Everybody, obviously, is trying to reduce their own rate that they pay, but that, in effect, causes somebody else to pay more, because you have this billion-dollar pie that everything has to add up to,” Peskoe says.
These hidden subsidies raise issues for legislators and residents, alike. States are struggling to meet environmental goals as transitions to renewable energy sources are put on hold and fossil fuel power plants reopen to help meet rising energy demand. Meanwhile, residents are already starting to feel the rising costs: 78% of Americans are stressed about their high energy bills, according to a CNET survey last year.
Reacting to the Virginia Joint Legislative Audit and Review Commission report last year, which touched on many of these issues, the tech-company backed Data Center Coalition (DCC) issued a statement highlighting the positive findings of the report. Namely that the industry “supports 74,000 jobs, $5.5 billion in labor income, and $9.1 billion in GDP in Virginia” each year.
“We look forward to continuing to engage with policymakers about the JLARC findings and opportunities to advance positive economic, environmental, and social outcomes while building and supporting Virginia’s 21st-century economy,” DCC President Josh Levi said in the statement.
Searching for a fair system
Community advocates, policy analysts, and economists advocate for reforming the way utilities serve the data center industry.
Some states like Georgia and Ohio are starting to consider ratepayer protections—such as creating new rates that separate industries using large amounts of energy from industries and residents that do not—as their data center industries start to grow. Other states, like Utah and Maryland, are passing bills that provide transparent rate structures for data centers, aiming to eliminate the “hidden subsidies.”
In other cases, it’s the utility companies themselves pushing back against fronting the cost of data center growth. Some companies are starting to require long-term contracts with guaranteed minimum payments from data centers, Kunkel says, ensuring they remain accountable for the long-term costs of infrastructure.
As costs continue to rise, legislators are pushing for regulatory bodies to explore other solutions. In February, Sen. Tim Kaine (D-VA) and three other senators wrote a letter urging the Federal Energy Regulatory Commission to make guidelines insulating consumers against rising costs and other ill effects of increased energy demand.
Later that month, FERC ordered a review of the issues AI data centers can cause other consumers, ultimately planning to evaluate the need for updated regulations. (Current FERC Chairman Mark Christie was nominated during President Trump’s first term and has been in office since 2021. The agency has largely escaped the cuts and firings seen at other agencies within the Department of Energy.)
Can Virginia teach us how to regulate data centers?
Still, policy options for protecting consumers remain largely unexplored both at the local and national levels. FERC has not yet issued a comprehensive set of regulations for data centers, and this year—for the second year in a row—most of the laws to explicitly regulate the burgeoning industry and protect consumers from the price shocks associated with soaring power demand did not make it through Virginia’s General Assembly.
“Too often, residents are left out of conversations about how data centers impact their daily lives—whether it’s increased noise, strain on infrastructure, or rising electric bills,” said Del. Josh Thomas (D-Gainesville, Va.), in a Jan. 14 press briefing about proposed data center reforms within Virginia.
Both houses of the Virginia state legislature passed bills that would have required localities to conduct a site assessment to gauge the impact of energy intensive facilities—including data centers—on noise, water, forests and cultural assets like parks and historical sites.
During the legislative session, a representative from the Data Center Coalition told a House subcommittee that some of the proposed regulation—requiring a power-grid impact assessment before approving data center projects, for example—would signal to major businesses “that their time and their money may be best invested elsewhere,” The Washington Post reported at the time. The Data Center Coalition represents 36 major companies in the data sector, including Amazon Web Services, Google, Microsoft and Meta.
The bills were vetoed by the governor. One that was signed into law directs the State Corporation Commission, a state agency in charge of determining utility rates, to look into whether customers—like data centers—are being charged correctly for their energy usage. (The Coalition did not respond to an email asking their views on the passed measures.)
With Virginia still at the forefront of the data center industry, it may be the best place to learn how to regulate data centers and protect impacted communities. But so far, community activists do not see Virginia as a positive role model.
“My perspective is that it’s a cautionary tale,” says Julie Bolthouse, director of land use at Piedmont Environmental Council, a Virginia-based environmental advocacy group. “Honestly, I’ve been very disheartened and jaded by the lack of action from Virginia compared to other states, especially around ratepayer protection.
For now, as the data center industry continues its upward trajectory in Virginia and across the country, so too will the costs millions of Americans are quietly absorbing.
No comments