What should state policymakers do about data centers?

0:06All right. Hello. Greetings, everyone. This is Volts for August 5th, 2026. What should state policymakers do about data centers? I'm your host, David Roberts. State policymakers are under enormous pressure when it comes to data centers. There are dozens of them banging on the door, demanding to be hooked up to grids. Utilities and the PUCs that regulate utilities are responding inconsistently, at best, often allowing ordinary ratepayers to bear the financial risks, and the public is furious about all of it. What should policymakers do? Many in the environmental community are pushing for an outright ban, but most states don't want to do that, at least not permanently.

1:03They want the investment and tax revenue that comes with data center development, but they need a response, a strategy that protects their rate payers and their communities from exploitation and abuse. To address that need, Climate Cabinet recently released a series of papers called Taming Data Center Turmoil, recounting the rise of the hyperscalers, describing why giant data centers pose unprecedented risks, and outlining a detailed set of recommendations for how state policymakers should manage those risks. This is not pure wonky technical analysis from a think tank. Climate Cabinet is an advocacy group, and the thrust of these recommendations is very much about consumer protection.

1:55Nonetheless, this is the first time I've seen a comprehensive strategy laid out in one place, so I thought I would have one of the key authors of those papers, Salim Chapman, join me to discuss them. Chapman is a longtime Sustainability and Environmental Justice Administrator who has worked for the Clean Air Council, the Philadelphia Office of Sustainability, the Center for Environmental Excellence, and Climate Works Foundation. He is now leading electricity affordability policy at Climate Cabinet. We are going to discuss the threats posed by data centers and their promise, and the tools state policymakers have in their toolbox to manage the risks and maximize the benefits.

2:42So, all right. With no further ado, Salim Chapman, welcome to Volts. Thank you so much for coming. Thank you for having me. Excited to get into this, but maybe before we just jump in, tell me quickly how you came to this or how Climate Cabinet came to this. Why did you guys feel like this was a needed intervention and how did you come to be heading this work for them?

3:10Yeah, thank you for that question. So it really starts on drawing on my experience as a former executive and state and local government. I know from that time what it feels like to sit behind a desk as a public servant and feel the weight of expectations to solve deep structural problems. And you quickly realize that the hardest challenges aren't necessarily finding the right ideas. It's about having information and tools to make good decisions in a complex and rapidly changing environment. And so I think that that's one of the most unappreciated aspects of the data center debate is the governance challenges.

3:48Most of the conversations focus on the outcomes people want, but less attention is really paid to the institutions that actually have to make the decisions. Before we get into recommendations, I wanted to talk about data centers just for a minute. One of the first paper, you know, we've had large industrial users hook up to grids before. That's not a new thing. There are aluminum foundries. There are manufacturing facilities. There are large customers, but what the first paper argues is that data centers are not like those previous large industrial customers. So maybe just say, you know, they say there are three things that make the hyperscalers unique.

4:36Maybe just go through why this is a unique phenomenon that requires a unique response. Yeah. So there's, as you alluded to, there are three dynamics that are really shaping the entire data center conversation. The first is what I call the time of mismatch. So hyperscalers operate on a completely different timeline identifier electricity grid. They can plan and build massive campuses in one to three years, but the generation and transmission infrastructure needed to serve that load often takes five to 15, sometimes even longer. And so from the grid perspective, demand can show up almost overnight, but infrastructure to support it can take years to catch up.

5:19Then there's the scale and geography. So a single hyperscale campus can request as much electricity as a small city in one interconnection requests. And we also know that those loads are clustering in places like Northern Virginia, Pennsylvania, Texas, and Georgia. There's this brilliant stat that in 2023, only 15 states accounted for 80 % of data center electricity demand. And so if you look at this from a national perspective, you can certainly miss the very real constraints that utilities, governments, and communities are facing those specific regions. Which brings me to the third dynamic that I think is really important to this conversation.

6:01And that's uncertainty because you have utilities, regulators, and developers who are making these billion-dollar investment decisions without knowing exactly how much demand will actually materialize, when it will arrive, or how advances in computing efficiency will change the outlook. And then we also know that hyperscalers are remarkably mobile compared to some of those other traditional examples you pointed to. They tend to sort of build wherever power is available, permitting and economics are most favorable. and they can certainly shift future investment just as quickly. And so it makes those planning dynamics even more difficult because you actually don't know what the projected workload will actually materialize into tomorrow.

6:42Yeah, I always think of it, I don't know what the right analogy is, but I think of it like as like a bee or something buzzing around an elephant. Like these hyperscalers, they're making these incredibly fast decisions, flitting here and there geographically. and like the electricity grid and electricity regulators are just slow, this slow lumbering beast that's like, can't even keep track, much less like move fast enough. Okay. So speed, they're building faster than grids can catch up. There's scale. They're just enormous single uses. And then this geography thing, they can build anywhere, basically anywhere there's power.

7:22They're not tied to particular communities. They're not tied to particular economies or geographic features. All of that is, I think, new in the world. And so it's not so much, I mean, I think one of the good things you emphasize in the paper, it's not so much that people aren't using the existing regulatory tools properly. It's just that the existing regulatory tools were not built for, they're not built for this. Okay. The second paper gets into the specific risks that data centers pose to communities, to states. And I would kind of want to go through these because some of them, some of them I think are obvious, but some of them are not obvious and some of them in particular don't really show up from the typical risk analysis you know procedures that grids undergo so let's go through some of those there are eight risks if you want to just start where you think is best yeah and you know there's one way of thinking about these as risk which is certainly how we frame it in the paper but i also like to think of them as warning signals, right?

8:38So how do we actually be able to have dynamics which allow us to, with some degree of reasonable certainty, be able to predict the outcomes that we can expect? And so the three of those sort of warning signals or risks that keep coming up time and time again for me, the first is forecast opacity. And it's that, you know, those demand numbers that we often see that's characterizing news headlines often comes from the developer themselves and are unverified, which certainly implicates how much we actually know about what the mail actually ultimately reached to create. Yes, and developers, of course, have their own incentives regarding how they want to pitch those forecasts.

9:24They're not necessarily objective analysts in this matter. That's absolutely correct. And what we also have to understand is that different players have different motivations. You know, there's the separating of sort of the major tech companies to Google's to Meta's of the world from sort of the speculative developers who are sort of oriented towards, you know, building and they will come. And so you have to sort of understand, as you were just saying, the different motivations of those actors and respond accordingly. All right. So that's one is just the uncertainty of the demand. We just like there are a lot of big projections of demand coming, but we don't know how much weight to place on those forecasts.

10:04Exactly, which brings me to the second, because the demand is ultimately what's leading to what we're building out. And so the next sort of warning signal I'll call attention to is gas dependency, that a lot of these deals are locking in new fossil capacity for 30 years. When the contracts by which are leading to them needing to be billed are operating on much shorter time horizons. Right. So a hyperscaler sign like a five to 10 year contract, build some gas. Again, we don't know for certain if they'll be there after 10 years. But if you build a big gas plant to provide them, the gas plant will definitely be there for 30 years.

10:48Once again, a timing mismatch. Exactly. Which brings me to the third warning signal, and that's unconditional subsidies. We're seeing states and local jurisdictions hand over pretty significant incentives with really no clawbacks and no conditions if the project ultimately under delivers. And so that's really critical because it plays into part as to how much value the public is seeing from these development projects. Right. And we'll get to how to add conditions to those. But again, this is like, this gets to the mismatch with the past too. Like certainly big local or state subsidies for giant industrial customers are nothing new.

11:38but like if you give a you know if you give an aluminum foundry or whatever a bunch of incentives to build you pretty certain they're going to build and it's going to be there for a long time but again like give these big subsidies to data centers and we don't really know if they'll fully build out what they say they will or how long they'll be there yeah no i just want to point to because you keep alluding to something that i really want to call attention to because i think the core issue around data center debate is really that our energy institutions were designed for a really different era.

12:11They were built around a world of slow, predictable growth, where demand changed gradually and infrastructure could be planned over decades. And we know today's economy does not look like that anymore. So whether you're talking about AI, advanced manufacturing, or even electrification, which I think a lot of your audience would be supportive of, they're all moving on faster timelines than the institutions that's responsible for managing the grid. Yeah. And you mentioned the time mismatch between gas plants and data center building. But I think the same time mismatch is true of other infrastructure too.

12:47As you say, if a giant hyperscaler says, we're coming to X in your state, and then the utility starts building, you know, power lines or substations or whatever, that infrastructure takes a long time to build and it lasts a very long time. And if you're building it for a particular data center and the data center doesn't show up, who ends up paying for that, right? That's one of the key things going on. Who ends up paying for that infrastructure? Exactly, which is why our policy series, Taming Data Center Intermoral, looks beyond just the question of whether communities to say yes or no to a data center.

13:30It's really looking at how do we identify the pathways, policies, and actions to enable responsible growth. And ultimately, it just comes down to what does it look like for these projects to earn a general social license to operate. Yeah, yeah, yeah. One other risk I did want to mention on your list here is, and this again is a familiar one from, we have a long history of this, which is citing these things near vulnerable communities, basically near communities that are already burdened. Talk a little bit about that risk. Yeah, really important one to elevate and certainly one near and dear to my heart.

14:11You mentioned in my overview of my background that, you know, sort of I came to age in this field of working on environmental justice issues. And so we have seen data centers certainly operate without a genuine social license. The project that immediately comes to mind to me is the one in Memphis, the XAI project, Colossus. And that's exposing a few different things. And certainly we can get into the conversation as to whether or not, you know, gas behind the meter should be banned or should we be incentivizing other fuel technologies. And that's a worthy conversation to have. But there's also another issue here that I think gets less attention.

14:52And, you know, it's what does it look like when these actors are subverting our permitting processes? What does it look like when they're failing to engage affected communities? And as you just alluded to, what does it look like when they're increasing the cumulative pollution burden in these communities? And those are all things that are needing to be wrestled with. And I'm really encouraged that there are really thoughtful organizations like the NAACP and other environmental justice organizations who've really taken that issue head on. Certainly, we want to sort of do our best to make sure that we're elevating attention to it and really taking their lead on this work, who's sort of more best positioned to work with the communities that are most exposed to these issues.

15:34Yeah. And one other one that I wanted to mention, too, is that some states, I think some state governments are so eager to have these things to the point that they're passing laws that override local authorities, basically, that prevent local authorities from exercising, siting and permitting oversight. And, you know, I have such mixed feelings about this one because like on that, you know, I do a lot of stuff about housing on this pod and NIMBYs. In the housing world, I think there are often good arguments to move authority to the state level and remove some of the ability of local NIMBYs to block things.

16:20I think that's a robust argument in that. But then something like this, a giant industrial customer, it's a different thing. So are there examples there? Or talk a little bit about this, where the authority should lie. Yeah, I think that how I often tease it out is, you know, you have to think about what avenue are you trying to engage with this issue. So if you're talking, as we were just discussing, around sort of the land use implications and the implications that that has on neighboring communities, certainly that is a local issue. If you're talking about sort of the energy implications and how that impacts repairs and affordability, that's sort of more within the state purview.

17:09And so that goes back to sort of where I opened, which is our approach as Climate Cabinet really has been how do we solve the real governance challenges around these issues? There are a lot of significant trade-offs that policymakers and leaders are going to have to evaluate. And so we just are trying to provide them with the framework and the right decision-making and analytical capacity to make sound, durable choices. Right. And so there are all these risks. And as we said at the beginning, like the conventional regulations and the conventional approach here don't always see all those risks.

17:48Those risks are not really codified to show up in those processes. Like the risk of just a single customer being, you know, 15 to 20 % of utilities demand and a whole demand, you know, in a whole utility area. Like that's never, we never contemplated that before. The timeline thing, saying the dedicated infrastructure, all of that is sort of new. So some of this is just going to have to be state policymakers updating those regulations to take account of those things. One point that I think is important in the paper and that is interesting to me is that these risks, they're not necessarily unique to a particular kind of market design.

18:31You know, as Volt's listeners know, there are vertically integrated utilities some places. There's what are called restructured markets. There's ERCOT, whatever ERCOT is. One of the points you make in the paper is that people are making kind of mistakes. There's this kind of the same failure pattern shows up in all kinds of market designs. Can you walk through that a little bit, maybe some examples of like the different places that are that are messing this up? Sure. Yeah. So we in this part of our paper, we looked at three different markets that operate within three different states. And so if you start with Georgia, which is the example of a regulated energy market.

19:17Right. Old school, vertically, old school, vertically integrated. old school, vertically integrated, I think those of which most people would sort of be most familiar with and think about when they think about utility structure. And so what we saw in Georgia is that the Public Utility Commission improved a major gas expansion really built on justification that was derived from developer supply forecasts. And so in that instance, the process worked exactly as it should. There was nothing sort of bad faith about it, but it still created a situation where ratepayers had significantly exposure, cost exposure, if those demand projections ultimately fell short.

20:00Right. So the ratepayers are paying for the gas, the gas plant build out. And if the demand doesn't show up to absorb all that gas build out, it's the ratepayers who are paying for the stranded assets, basically. Exactly. And then PJM, though, PJM is a competitive market, restructured market. Talk through that one a little bit. Yeah, so what we are seeing in a state like PJM is that you can have a single hyperscale campus being bought online. At the cases that we looked at, it was 30 % of local peak demand within that particular region. And that triggered a capacity market event, which ultimately resulted in, if people have been following the PJM sort of issue, that you're seeing sort of historical capacity prices year over year.

21:02And so what we are seeing there is that it's similar. The process worked exactly as it should. But by triggering that capacity market event, you had states all across the 13-state footprint that PGM covers having to take on some of the cost that was associated with bringing a new facility online when they had no say in actual decision-making around whether or not the facility would be approved.

21:30yeah who pays this comes up again and again and then there's finally ERCOT which people you know I think which people think of intuitively is like sort of the most free market closest thing to a free market type of system and they might think well in that kind of market surely you know it's the developer who takes the risk if it's you know really working like a free market, but it turns out there's failures there too. Talk about that one real quick. Yeah, exactly. I mean, what we also know is as we are confronting this new period of technological innovation, we are also operating within a much more volatile climate than what we historically had.

22:09And so in the ERCOG case, we saw hyperscale growth colliding with extreme weather events. And so some of the emergency programs and gas dispatching that had to be put in place to meet that emergency event added billions in surplus charges that really surfaced as price volatility, but wasn't actually visible as a line item on any individual ratepayers' bills that said, you know, this was driven by hyperscale growth. Right, right. It shows up as price volatility in the market, which is absorbed by everybody who's involved in the market. Exactly. And so all these kind of come down to who is taking the risk and who is paying the price.

22:57So in all these cases, you take data centers, demand forecasts, these developer demand forecasts, translate them into a bunch of costs, right, to anticipate meeting that need. And it is the ratepayers ultimately who are paying those costs to prepare. So in other words, it's the ratepayers who are taking on that risk, the ratepayers who are paying. And then if the developer forecasts don't pan out, the ratepayers are stuck with it. That's kind of the core theme through all those market, despite the market structures. That is the core theme, that ultimately this comes down to who's taking on the risk and who's capturing the value.

23:52And so before you get into specific recommendations, I guess one question, which I bet a lot of people in the audience have, which is given all these extraordinary and unprecedented risks, all the downsides here, all the risks of sort of ratepayers being stuck with stranded assets, with having to pay for this, you know, long-term infrastructure, et cetera, et cetera, et cetera. why not just ban these things? That is, I mean, that's certainly on the table. There's a lot of groups out there advocating for this. Why not just a ban? Yeah, really good question. And I think it really comes to where we thought as climate cabinet, we could offer most value in this space.

24:40And so for us, what we were hoping to do is understanding that many state lawmakers are relatively under-resourced compared to the complexity and pace of this issue that they're being asked to navigate, that we really have to work to strengthen the capacity of state policymakers because each jurisdiction is going to have to evaluate their trade-offs, right? Like, yes, these are causing really complex issues that are having burdens on ordinary households and rate payers. But at the same time, some of these jurisdictions are wrestling with some really significant revenue generation issues and problems as well.

25:20And so there is no one size fit all solution. I think what we want to do is to make sure that we're laying out all of these clearly so that there can be transparency in the decision making and that state lawmakers ultimately have analytical capacity to make those decisions. Now, with that being said, we are also looking at this issue as sort of what we believe is the underlying dynamic. And that's what I keep coming back to is whether our legacy energy systems can adapt to a rapidly changing technological world. And so what we're seeing on the data center side is revealing some of the same underlying challenges that we see when we talk about clean energy solutions to the limit, right?

26:02Because on one side, you have distributed energy resources like rooftop solar, batteries, micro grids and so forth are challenging a system that was built around large centralized power plants in one way electricity flows. And then on the other side of the equation, you have hyperscale data centers that are creating unprecedented concentrations of demand and pushing the grid to respond faster than it has historically has. And so we're ultimately going to come back to the conversation. It's bigger than any single technology. Really what we're talking about here is our energy systems and governance frameworks and whether they can adapt to the speed of change.

26:41Yeah, I like that way of putting it. Sort of like supply is disaggregating and spreading out, even as demand is hyper-concentrating in unprecedented ways. Both sides of those are kind of confusing the traditional process. those. Yes. And so we have to continue to make sure that the public interest is protected as our energy landscape continues to evolve. And I think that's really the cross of this issue. Yeah. And I did just want to say here on the ban question, because I don't know that in the circles where bans are popular, that this always gets as much visibility, but it is really true that these facilities produce a lot of investment and a lot of tax revenue.

27:30And as you say, lots of communities and lots of states need and welcome investment in tax revenue. There is an upside here that can be captured. There is value to be captured here for the communities. It's not all risks and downsides. Exactly. And I think it's also important too to really make sure that we're highlighting, how do we create the right accountability structure around these things? So that way, if they aren't generating that value that we ultimately project, that we're actually able to make a change that is aligned with that. Right. All right. So let's go through then. You have this sort of pretty elaborate structure where you're recommending for state policymakers how to approach this and specific policies.

28:20and they're broken down. There are nine elements in three tests. And the way the tests are broken down is what to do before one of these big things, big data centers, before it's approved, then there's a whole set that are recommended while it's operating. And then there's another set after the deal is done. So I want to go, I kind of want to walk through those, but let's start with what should policymakers be doing and thinking about before they approve one of these things? You have three, you have three recommendations there. Yeah. So what it ultimately boils down to our first test is really about has the developer or the company demonstrated that the demand is real, it has put its own meaningful capital behind that commitment.

29:14And so given the uncertainty around future data center growth, policymakers have to be careful about building infrastructure based on the speculative demand projections that may not materialize. And so all the sort of three policy elements that are included underneath that first test is in alignment with that goal. Yeah, and so one of them is verified forecasting. I'm not totally sure how that's going to work. I see that you don't want to just accept what the developers say, you know, because as we mentioned, they have their own incentives. But where do policymakers look for better demand forecasting?

29:58Are there available, like, outfits, independent analysts? Where do they go to sort of stress test or vet these projections? Yeah, I think that, you know, there's a various array of opportunities available to different jurisdictions. The sort of practice example that we call out is that we believe that there is opportunity within PUC or some other independent state entity that hasn't necessarily been borderline formed yet to basically do that independent analysis. So like a state, some sort of state agency. A state agency or some sort of quasi-government entity that has enough independence that can actually provide a reasonable analysis that isn't connected to the developer.

30:52Yeah. I mean, I know there are people who would question in some cases whether the state PUCs actually have that independence, whether they're not also captured by these giant hyperscalers. I mean, at a certain point, you have to trust somebody. Which, I mean, you bring up the good point, and I know I'm probably perhaps sounding like a broken record, but I think that's why it's really clear-eyed to keep this conversation focused on the governance and institutional piece of it. So there are some really key questions that you're raising and I'm continuing to raise about whether or not our energy public institutions are actually up to the task.

31:30And I agree. That is the realm of where a lot of these conversations and solutions are going to be found. And then you also say the committed capital here, requiring some committed capital. What does that look like? Is the idea that developers put up money up front such that if they don't do what they say they're going to do, it's their money on the line? Is it that simple? Absolutely. And this isn't an unprecedented or novel concept. There are other sectors within the economy where project developers are asked to sort of put together bonding requirements or a letter of credit to basically state that they are financially responsible if their project doesn't materialize as they had described.

32:20And this also uniquely has to do with grid upgrades. You recommend what's called cause and pay interconnection, meaning that if the hyperscaler, if the data center is the cause of a grid upgrade, if the grid upgrade is made for the data center, then the data center should commit to upfront before they're allowed to, before they're allowed to, before they're approved, they should commit upfront. We will use a minimum amount of that upgraded infrastructure, or if we don't, we'll pay for it. We'll pay penalties basically, just so that we avoid this thing where the ratepayers get stuck with the infrastructure costs.

33:07Is that accurate? That is incredibly accurate. And sort of what we're trying to get at there is this idea, as I spoke to earlier, that different players within this space are needing different tools to sort of attack how they're looking at the issue. And so we think sort of the calls and pay interconnection will do a good job as sort of creating more thoughtful speculative development so that if those developers aren't able to track the customers that they're looking for, that ratepayers aren't stuck with that energy demand. Right. And presumably this would give developers an incentive, as you say, to be less speculative, to not just go around throwing demand forecasts here and there, you know, with no downside.

33:57Like if they're on the hook for, if they throw a big projection and then a bunch of infrastructure is built in response, they're on the hook for paying for it. That gives them an incentive to lock down their operations too, to make sure that their projections are more accurate in some sense. Yeah, you're picking up on sort of our thinking around this is that how could we find integrated intersectional solutions to these issues? And so we're hoping that within that first test that those three will sort of come together and be mutually reinforcing. All right. So that's before approval. Make sure you got verified demand projections.

34:36Make sure that the hyperscalers and developers are putting capital up front so that if whatever they say is going to happen doesn't happen, they are the ones paying for it. in terms of bonds and stuff like that, but also in terms of infrastructure commitments. That's beforehand. And then there's a set of recommendations for while these facilities are operating. One is real cost pricing. Tell us a little bit what that means. That's going to be a utility thing, right? Yeah, so essentially what we're asking for here is that is the project paying the full cost? and accounts for the burdens it creates.

35:20And so essentially here is we want to make sure that depending on the time of usage during the day, that that's actually reflecting the actual stress that that facility is putting on the grid. And this is something Volt's listeners have heard a lot about over the years. This is just instead of a flat volumetric rate, pricing that reflects locational and time-sensitive factors, because when you have a single facility that's 20 % of your load, it matters a lot when it's drawing power, right? Yeah, and the goal here is really to leverage the unique characteristics of these facilities as we talked about towards the earlier parts of this conversation is their mobility.

36:07And so what we're hoping here is that this will sort of function as an incentive to get these hyperscale campuses to actually move to where there's headroom on the grid, given that there will sort of be less cost implications associated with those places. Right, right, right. So if rates reflect the locational and time-sensitive factors, that will, in some sense, guide them to put the facilities, not just where land is cheapest, but where there's power, where there's power overhead. And another one is what you call on-call load flexibility, which I think is really interesting. There's a lot of talk about this, about making data centers more flexible.

36:50But what do you mean in terms of like a requirement for data centers? Hey there, everybody. Don't worry. I'm not going to tell you about a new mattress or push a credit card on you. This isn't an ad. There are no ads on Volts. It is supported entirely by listeners like you. If you'll indulge me for a second, I'd like to ask for your support. I started Volts because we're all surrounded by depressing news about climate change and misinformation about clean energy. And it's never been more important to share the stories of the real people on the ground doing the real work of transition and all the ingenuity and courage and public spirit they are bringing to it.

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38:09I am grateful for any and all support. If you're already a paid subscriber, thank you. And now, back to the show. What do you mean in terms of like a requirement for data centers? Yeah, so I think anyone who is accustomed or knowledgeable about demand response, this will sort of mirror that. Essentially, what we're asking for is that when the grid is underneath a high-stress event, which, you know, we're in this summer now, and so we're encountering a lot of those, to make sure they actually have the flexibility on hand to be able to sort of reduce the amount of energy they're drawing off of the grid.

38:48And this idea is really just about how do we make these facilities more of an asset to the grid rather than a liability. Right, right. Right. And specifically, like they should be called on to ramp down before residential customers are asked to sacrifice. Absolutely. Absolutely. And then the third one here is scenario based planning, which is talk a little bit about that in contrast to just the developer forecast. Yeah. So so I think, again, we're getting we're looking at this from an institutional lens. I understand that in a lot of cases, utilities are incentivized to build as much as possible, right, to build capital.

39:34And so what we ultimately want to do is to make sure that when they're making those capital planning decisions, that they aren't necessarily just solely based on the most optimistic projections, but they're actually also accounting for the potential downside risk if those projects don't materialize as they expect them to. yeah it's i mean one of kind of one of the awkward facts here is that developers have incentives to be very rosy in their projections and then kind of the utilities also do utilities also are incentivized to accept those rosy projections because like they just means the utility needs to build more and of course they want to do that anyway this is an incentive mismatch we come back to on this podcast quite frequently.

40:23Absolutely. You know, the example that always sticks out to me is that some utilities have as much of a 11 % guarantee rate of return on the capital that they're building. And tell me another business where just doing the thing guarantees you 11 % return. Yes. And so if a developer comes along and says, hey, you need to build a gazillion things, you know, who at the utility is going to be the one to be like, no, maybe not, you know. So like state lawmakers are going to have to do something to impose that kind of discipline on utilities via their PUCs, I think, like, because utilities are not going to do that on their own.

41:03And that's what we're trying to get at on this narrow-based planning. And then after the deal is done, there's three more. And these, I think, are really interesting. And in some sense, these are some of the most kind of ambitious recommendations. One is new and matched clean energy. I was a little disappointed you didn't use the Beyonce acronym, bring your own new clean energy, but talk a little, talk a little bit about what new and matched clean energy means. Yeah, no, we, we love the acronym too here at Climate Cabinet. So we're right there with you, dude. The idea that we wanted there was to have something that really emphasized the hourly aspect of it.

41:43Because ultimately, a lot of these projects, you know, are buying renewable energy credits that aren't necessarily within the region that they're operating within. And also isn't necessarily matched hour by hour with their energy usage patterns. And so what we want to avoid is that, you know, during a hot summer day, when the grid is experiencing peak demand, and a hyperscaler is drawing a significant amount of load off of the grid, that that actually isn't fossil fuel-based energy, that they're actually all studying that hour by hour with additive clean energy. So we love the acronym. We just wanted to make sure we were emphasizing more nuance in the debate.

42:26Yeah, but I want to poke at this one a little bit because if you are serious about, I mean, if you're going to tell a data center all the additional energy you're going to, all the additional demand you're going to add has to be met hourly by clean energy. That's a big demand. And it's a big change from the present circumstances, because as you know, like, as you mentioned in the Georgia case, a lot of this demand is being met buy new gas, either in front of the meter or behind the meter. So I guess, are you guys serious that you want state policymakers to say, no, this can't be met with gas, you have to use clean energy?

43:11Like, how strict do you imagine this being? Well, I think the key issue here is really to make sure that the public is getting a fair rate of return from these major infrastructure investments. And, you know, certainly it is an ambitious vision, but ultimately we also know that that's where we need to be moving towards if we're actually going to be responding to climate crisis with the same velocity that it's currently on setting. And so for us, what this debate is, is about how do we set a challenge for some of the most innovative companies in our economy right now to try to meet. You know, five years ago, certainly we weren't talking about AI to any significant other degree than we are today.

43:54So we know that technological change is possible. And so that we want to make sure that we are setting the imagination and vision for where we ultimately know we need it to go. And I feel very confident that these actors can respond to that. And this is like, this is one of the things where I wanted to emphasize some upside because you were talking so much about risks and downside. Like these entities have lots of money and they're and they're highly, highly incentivized to get on the grid. And so, like, it would just be crazy not to use this opportunity to get them to fund, you know, the clean energy that we all need and want.

44:36Yeah, which which I want to highlight on something there, because I think you bring up a good point. You know, when we were talking about the massive amount of capital that was going to flow into clean energy development through the Inflation Reduction Act, a lot of the conversation was how could that stimulate private capital into this space? And so obviously that as a policy mechanism is no longer available to us. But this one is, and I certainly think is behooving on policymakers at the states to take advantage of it. in some sense, much more incentive for the private sector than almost anything the IRA could have done.

45:14They feel it's not being imposed on them. They feel the incentive. It's their own goals rely on it. The second one here is citing standards. This I think is important. And this is the kind of thing that I imagine that just like your average person on the street sort of imagines they're already doing, but they're not necessarily, like, about where you put one of these things in terms of communities. So just talk a little bit about the kind of siting standards you're referring to. Yeah, so I think it gets back at what we were talking about earlier in the conversation about making sure that we are preserving the flexibility and authority of local governments to make those land use decisions, given that they can be most responsive to the dynamics that they are seeing.

46:03And for us, you know, this is about that. It's really hard at the state level to really be able to understand when these infrastructure developments are going to have system-wide consequences. And you see to a certain type of way that states are really kind of struggling to figure that out, right? Like if you look at some of these policies that's been recently proposed or adopted, you know, they're doing size thresholds at 50 megawatts in some cases, at 75 in the other. And ultimately, at the core, what they're trying to do is really understand when are they having these massive significant consequences.

46:40Because ultimately, that's how communities experience these projects, right? Like they're experiencing them through their electricity demand, the water use, the noise, the truck traffic, and the land use. And so we just want to make sure that one, that those decisions are reserved for the level of government that can be most responsive to it. And second, that we ultimately have the frameworks in place to be able to assess those cumulative impacts. I mean, I think what we saw, again, from the illustrative example in Memphis is that there's a significant way for this project to be done wrong. You had an already environmentally overburdened Black neighborhood in Box Town in Memphis that then had to have this additional environmental burden laid on top of them.

47:26And so, you know, cumulative impacts is a longstanding debate in environmental justice community. And so this is just another forum by which it speaks to the need of those types of policies. Yeah. And you get here really to the need for state capacity. You know, we come back again to the need for state capacity. You need the ability to do these sort of analyses, rate payer risk and different site alternatives and their relative risks and all this kind of like you need state capacity to do that. And also, because you keep raising the Memphis thing, this is like the Memphis example, the AI facility that Elon is putting in Memphis, is just like outright breaking several laws.

48:13Like there are laws in place, you know, like there are air quality laws that they're just flat out breaking. So in some sense, you don't even, you need state capacity, but you also just need state willpower. You know what I mean? Like you could hold that facility accountable for the laws is breaking and it just doesn't seem like Tennessee is doing that. Well, yes, I think we can all agree that we need our state actors and policymakers to be taking advantages of the tools that are available to them. But it's sometimes isn't that straightforward. So even in the case of the Memphis example, that facility was subverting local regulations by only operating for 364 days because there was this stipulation within the regulations that said that if a facility was portable, it was exempt from certain requirements.

49:05Which goes back to where we started this conversation, that for us as climate cabinet, I know most people know us for our moneyball approach to electing state and local climate champions. But we also have a robust policy program focused on strengthening the capacity of state lawmakers. And this is just another example of why we really need to make sure that we are improving the ability of our institutions to govern. Right. And so the last one on the list here is has to do with these incentives. So people know that whether it's like a big industrial facility or a sports stadium or whatever it is, you often have states competing for these things by offering big tax breaks and tax incentives.

49:49But as you say, this particular kind of customer poses risks that aren't necessarily the same as a sports stadium or something like that. So you're talking about tying those incentives to performance. Say a little bit about what that would look like. Yeah, so I think if we follow sort of the traditional trajectory of how this works, right? You have a government entity provide an incentive to some sort of project. Then that project sort of materializes and then subsequently to evaluate the economic impacts of that. And more often than not, it shows that the projected economic impacts actually didn't meet what was actually materialized, right?

50:34Those two things didn't match up. A familiar story. Yeah, a very familiar story. And so ultimately what we want to do is to say that, okay, there could be very important use cases for incentives to be used. Even though I think we know that that isn't necessarily the biggest influencer in the decisions that these data center providers are using to make their decisions, right? It's not the biggest factor. Ultimately, speed to power is the biggest factor. Yeah, yeah. But. It's in the mix, though. It's in the mix, exactly. So if you are going to give incentives, then you should make sure that they are conditioned on actual performance.

51:12So if you do that economic impact study, and it's not passed in muster, right, that the benefits actually aren't materializing as projected, that you're actually clawing back some of that investment that you need. Right, right. And that seems to me good to do for incentives for data centers, but also really state lawmakers ought to be doing that for all kinds of these big incentives. If the sports stadium doesn't draw the audience or whatever, then you get some of that tax abatement back. You get some of that incentive back for the citizens who paid for it in the first place. Like performance-tied incentives.

51:53Seemed like a good idea across the board. I couldn't agree more. Okay, that's a big, it's kind of a menu there for lawmakers who are contemplating when these things are thinking about coming to your state. Right. So one question this sort of raises is a lot of that is about conditioning new interconnection agreements. But of course, in a lot of cases, these things are kind of already built. There's a lot of places where these things are already up and running. And it would be kind of perverse if new data centers faced all these requirements, et cetera, and the old ones are just kind of grandfathered in and allowed to run the way they've been running.

52:34So is there any way to get at already built and running facilities? Yeah, so we addressed this a bit in the policy paper we just released last week, that there is sort of a different approach needed for existing facilities. And we recognize that the avenues for making that change is much different than sort of a new data set project because ultimately you have to wait for those projects to come up for some sort of renewal period where you actually have the opportunity window to be able to institute new requirements. But as you alluded to, this is about avoiding creating a two-tier system where there are new developers that have their face requirements that existing actors don't.

53:24And then I think one of the things that hyperscalers and land developers are going to be thinking, and I'm sure you've heard this, and I'm sure they're out there saying this to state policymakers, which is, look, all this sounds nice. but if you if you state X you know Virginia whatever impose this sort of network of tight requirements on us we're just going to go elsewhere. This is why states throw these unconditional incentives at customers. This is why states you know states are generally wanting these things and kind of begging them to come and I think developers are going to be saying this to state policymakers.

54:17And I think state policymakers are going to be having this fear that like, if we become the state with all these requirements, they're going to go to a different state. So what is like, how do you respond to that? And like, what is the, is there a track record here to point to, how do you respond to that? I, what I'm sure is a very common complaint. Yeah. So when we look at the Virginia example, which is a really good case study, we are seeing that that is an involving policy environment. Obviously, the issue has gotten increased attention in recent years, but it has been evolving for a significant period of time.

54:55That's the reason why Virginia is perhaps the world's most mature data center market. Yeah, and they've taken the state government there has done more stuff, data center related stuff than almost any other state. Exactly. Yeah, I think we see session after session that there is a huge volume of legislation that's being proposed to sort of address this issue. In 2025, there were more than 30 data center bills put on the board. And then this year, you saw them pass the first of this kind tax on data center electricity consumption. I think neither of those dynamics, the fact that it's getting more attention and ultimately translating into durable policy outcomes is going to stop Virginia from being a highly successful market in attracting data center development.

55:40There is broader dynamics at play, which is why you're seeing these data centers cluster in specific places, right? If it was just down to the economics of it, we will see a much more dispersed network of development, but that just isn't bearing out. So you say if a state is attractive to data centers, that's going to be true even if they put some of these requirements in place. The factors that are drawing data centers there will be in place regardless, even if these restrictions go into place. I think so, because, you know, I think what we're seeing here is now is that the politics around this issue is converging, right?

56:22Like whether you're looking at blue states or red states, you're seeing that there's an aggressive approach to sort of try to mitigate the impact on ratepayers. Like, let's just look at the last 60 days alone. You had a Democratic governor in New York pass the first statewide moratorium on data center development. And then in Texas, you had a Republican governor basically say that data centers have to self-fund their infrastructure. I think as the landscape is changing across the board, data center developers are realizing that they're gonna have to adapt to this new environment, which ultimately might require more of them.

56:59And like I said before, I think that setting a standard high is important because these are some of the most innovative companies in the world. And certainly within our economy, and I have all the companies in the world that can be challenged. Is there a particular state that you think is doing better or worse? Like I said, just quickly, do you want to like grade a couple of states? Like who would you look to as being sort of ahead of a curve? As you say, there are like almost every state, there's like, I forget the status, like 300 bills in state legislatures have been introduced about this in just the past session or two.

57:37So everybody's grappling with it. Is there a state you think is sort of ahead of the others? Well, I look at the issue like this, is that we have to tease out volume from actually outcomes. And so what our framework is allowing states to do is to say that, you know, here's how we take meaningful steps forward, given the political and policy window we have available to us. And then here's how we do the work of what remains. And so if we return back to the Virginia example, you know, highlighting how they just passed a first of its kind tax on data center electricity consumption. But if we evaluate that, we know that that is primarily a revenue mechanism and doesn't necessarily provide a comprehensive approach to cost allocation.

58:27It doesn't encourage operational flexibility that makes data centers a great asset. And it certainly doesn't address cumulative impacts. What I sort of like to sort of look at is that even in a region that has confronted this issue, perhaps in a more tangible way than any other place, it's still requiring an incremental approach. Certainly, we have, you know, benchmark policies out there. There's a really good policy being considered right now in Illinois, the POWER Act, which is incredibly comprehensive. But even that, based upon our analysis, has some significant gaps. And so what we ultimately want to provide is a consistent and comprehensive framework that state legislators could use to evaluate the policy environment over multiple legislative sessions.

59:16Have you thought about doing what, shoot, what is the right wing group that does this? I can't think of their name. It's a state based group, but they basically create model legislation, like, you know, off the shelf. Like, is there, have you thought about creating like a bill that covers all of these things? Something like a contra-hempers bill as a kind of model for states to draw on? we thought about it. As I was saying earlier, I think where we thought the most important place to start is really ensuring that policymakers have the information, analytical capacity, and tools to make sound and durable choices.

59:59Because they're being asked to do this, to make these very long-standing generational decisions on incredible time pressures. And so that was our starting point is to really help them do some sense making around this issue. And then once we have a better understanding of how these dynamics are playing on different states, what tradeoffs they're making, then ultimately I think we might be in a better position to make a model bill that might be applicable across multiple different states. But right now we see what's most clear is that this is a local challenge, not a national one. And so there's going to be some things that are translatable, but a lot of this is going to have to be done in a state-by-state context.

1:00:38Right, right. Okay, so that sort of covers the waterfront. I guess as a final question, if I'm a state lawmaker who's reading and listening to all this, you know, it's a little overwhelming. There's a lot involved. There's a lot going on. Is there a sort of like, I wake up Monday morning. What do I do first? what what's kind of step one here for for for state lawmakers who see this train coming down the tracks at them yeah so i think the first step is is to understanding um where in the project cycle are you trying to uh address right um the the next step is is to really understanding okay what has been currently done in your state that's certainly something that climate cabinet could help with, we actually were able to put together a legislative portfolio review for lawmakers in Pennsylvania, where at the latter part of June, they were considering as many as 30 different data center-related bills.

1:01:40So we were able to help them understand, okay, what was the cumulative impact of the bills that were under consideration and where the gaps remain so that it could set them up well for potential follow-up legislation. So call the Climate Cabinet, we can help you with that. But once you sort of understand the policy environment, it's starting to really understand, okay, how can we begin to sequence these mechanisms in a way that gets us to a comprehensive environment? You alluded to the fact that a lot of these policies are ambitious. They will take time perhaps that extends over multiple legislative sessions, but certainly there is a starting point.

1:02:16And so once you find that starting point, we can help you with the sequencing that comes after that, which is a little bit of a teaser for an upcoming paper for us. About sequencing specifically? About sequencing specifically. All right. All right. Well, we'll stay tuned. All right. Well, Salim, thank you so much. This is really interesting. This is the state legislative issue right now. It's right on everybody's plate. And I just thought it would be good just to lay out a framework to help them not feel overwhelmed. So I hope this is helpful to them and I hope they get in touch with you. Thanks for coming on.

1:02:52Me as well. And thank you for having me, Dave. All right. Awesome. Thanks, everybody. You've been listening to Volts, founded and hosted by me, David Roberts, produced by Nate Peavy, and supported entirely through the generosity of listeners like you. If you enjoyed this conversation, please consider telling a friend about Volts. That's how this show grows and survives, through word of mouth. See you next time.

1:03:24Thank you.