Ideas abound for data center regulations but it's critical that legislation addresses all issues

By State Senator Chris Larson

This is the final part of a three-part series from Sen. Larson

It’s clear that Wisconsinites from all walks of life are frustrated with the stampede toward data centers and are demanding a change in course. 

On Feb. 17, the Wisconsin State Senate’s Utilities, Technology & Tourism Committee held a public hearing on 3 data center proposals, two from Republicans and one from Democrats. At the time of the hearing, neither proposal had bipartisan co-sponsorship. In today’s political environment, where it’s not uncommon for less than 5% of Democratic bills to receive public hearings in the Republican-controlled legislature, it is a notable and welcome change that my colleague Jodi Habush Sinykin’s bill was heard at all.

What we heard during public testimony was a high level of skepticism regarding AI data centers shared by a broad spectrum of our Wisconsin neighbors. A recent Marquette Law Poll found that 55% of Wisconsinites believe the costs of AI data centers outweigh the benefits. The results were nearly identical no matter which party the respondents preferred. During the hearing, Republican Rep. Clint Moses, Assembly Author of SB 969 (see below), characterized support for data center regulations among his constituents as a “90-10” issue with 90% in favor of implementing them. 

What do the three bills heard in committee on Feb. 17 actually do? Let’s break them down.

AB 840 

The Assembly version of this bill (introduced by Sen. Quinn and Rep. Zimmerman) actually passed the body on a largely party-line vote in January. It now sits in the State Senate where it faces an uncertain future. Honestly, that’s probably for the best.

AB 840 seeks to prevent large data centers, as defined in the bill, from causing residential customers’ electric rates to increase as a result of their tremendous power draw. It would require closed-loop cooling systems at large data centers in an effort to limit water use, and also require a data center’s water usage to be reported annually to the DNR. It would also mandate that any clean energy capacity that primarily serves a data center be located on the site of that data center. There are a few other provisions as well, including one related to land remediation on canceled projects and one encouraging data center operators to hire local workers.

This bill falls short in a few key ways. First, because some of the terms in the bill are not properly defined under state law, it may not be possible to ensure all electricity costs associated with large data centers are not passed on to residential customers – particularly transmission costs. 

Second, limiting water usage for data centers themselves does not account for the water needed to generate the power that runs them. Nuclear power, a source that has received renewed interest in recent years from some elected officials, uses a tremendous amount of water, for instance.

Third, and perhaps most importantly, the requirement to locate renewable power generation facilities that serve data centers on the site of the data center would make it far more likely that fossil fuels – not renewable sources – are used to generate the data center’s power. In the rare cases where a data center does co-locate with a renewable energy facility, it would effectively guarantee that residential customers’ power is generated primarily by fossil fuels like coal or methane, rather than cleaner options like solar or wind.

SB 969

SB 969 (introduced by Sen. Jacque and Rep. Moses) is a pretty simple bill, and likely has more merit than AB 840. The bill would ban tech companies and local governments from entering into nondisclosure agreements that have the “purpose or effect of concealing the details of the development of the data center from the public or preventing public review of the data center.” Rather than implementing a penalty for violating the provisions of the bill, it would simply prohibit local governments from approving or permitting any data center project where a nondisclosure agreement was used.

The bill does have an exception that allows nondisclosure agreements for the purpose of protecting public disclosure of trade secrets. This leaves the door open for costly litigation as big tech companies are incentivized to define more of the details of the development as so-called “trade secrets.” By the time this litigation would be resolved, it may be too late to stop the project from proceeding. One point in this bill’s favor is that unlike AB 840, it applies to all data center developments, not just the largest ones.

The future of this bill in the current legislative session is unclear.

SB 729

Now for the good stuff. SB 729, introduced by my colleague Sen. Jodi Habush Sinykin and co-sponsored by dozens of Democrats (including me), this bill would put into place some meaningful safeguards for our neighbors.

First, it requires that data centers bear the costs for the power they consume. It does this by requiring various pieces of information to be provided by data center companies to the Public Service Commission (PSC) so that a special Very Large Customer electric rate can be determined for the data center that captures the full cost of power needed to operate it.

Second, it would require that workers involved in the construction of data centers be paid a living wage (the higher of prevailing wage or collectively bargained wage for union-represented workers).

Third, it would require that 70% of the power used at data centers come from renewable sources in order to qualify for the state’s existing sales tax exemption for data center projects. Unlike AB 840, this renewable energy would not need to be housed on the data center site.

Fourth, it would implement various water usage reporting requirements, including a soft cap at 25% of the total water usage for the utility serving the data center.

Finally, it would impose a special fee on data centers to be split evenly between two existing funds - the Utility Public Benefits Fund, which funds energy efficiency, renewable energy, low-income energy assistance, and other public benefits programs, and the Green Innovation Fund.

What sets SB 729 apart from AB 840 most of all is that it would provide a more workable solution for the PSC to accurately implement the Very Large Customer rate, ensuring that the public’s top demand - making big tech companies pay 100% of the costs for the power needed to run data centers - is realized.

The Pause to Protect Act

I very much appreciate the work of all the authors and stakeholders involved in crafting the data center regulation bills discussed above. There are good ideas in all 3 bills, and enough of them in SB 729 that I put my name on it as a cosponsor. However, I firmly believe that Wisconsin needs – and our neighbors demand –  that we go a few steps further. That’s why I partnered with Representative Darrin Madison on the Pause to Protect Act.

Before getting into the specifics of what the bill seeks to accomplish, it’s worth answering the question “why a moratorium?” In other words, why not evaluate each individual data center proposal on its own merits like any other large-scale development project? The answer is pretty simple: there’s a very good chance that nothing passes before the end of the session. If that happens, tech companies will continue to divide communities and take advantage of our broken Public Service Commission. With no new laws, We Energies will lock us into another 30+ years of expensive fossil fuel based power plants and consumers like you will see your energy bills rise even higher. 

The status quo is not working and it’s about to be locked in for the rest of the year

The sales tax exemption for qualified data centers that was inserted with little public awareness into the 2023-25 State Budget, before any such facilities existed in our state, has attracted a host of data center proposals in communities like Beaver Dam, De Forest, Port Washington, Mount Pleasant, Kenosha, Menominee, and more, with no signs of stopping. Local officials, most of whom work part-time for very little pay, are not provided sufficient information to make an informed decision, and are often asked to work in secret, cutting the public out of the process until the very last minute. This is no way to make decisions that could have impacts that last for generations.

All but the most ardent data center supporters can agree that some form of state regulatory framework regarding data centers - which currently does not exist in Wisconsin - is necessary. However, such policies could take years to implement. By then, it may very well be too late. By then, our farmland, water, air, and workforce could already be irreparably harmed. The advantage of a moratorium is that it could take effect immediately, giving us time to put the necessary safeguards into place before development on these projects can resume.

The Pause to Protect Act is quite simple: it would prohibit the operation of a data center in Wisconsin unless all of a specific set of safeguards are provided by law, as determined by the Secretary of Agriculture, Trade and Consumer Protection (DATCP). This moratorium would apply to projects currently in the planning stages as well as any new proposals that may emerge. Here are the safeguards that would be required for data center development to restart: 

1. The establishment of a statewide data center planning authority.
2. A prohibition on shifting data center energy and water costs to residential customers.
3. A prohibition on shifting data center energy infrastructure costs to residential customers.
4. The creation of a land and community recovery funding mechanism.
5. The elimination of state and local financial subsidies.
6. Mandatory data center public reporting of water and electricity usage.
7. The creation of data center specific safeguards concerning air, water, and noise pollution to protect the environment and people’s health.
8. A requirement that 100 percent of energy derived for data centers must be provided for by newly built, directly accessible renewable energy.
9. A requirement that the contractor constructing the newly built, directly accessible renewable energy projects required for purposes of the bill pay either a prevailing wage or collectively bargained wages.
10. A requirement that the contractor constructing any data center pay either a prevailing wage or collectively bargained wages.
11. The restoration of the Public Service Commission’s integrated resource planning authority.
12. A prohibition on nondisclosure agreements between data centers, data center developers, utilities, and local government officials.
13. A requirement that data centers must receive prior approval by referendum of the electors of the municipality where the data center is to be located.
14. The creation of an enforcement and penalty structure specific to data centers.

For purposes of the bill, a data center is a facility having a primary purpose of storing, managing, and processing digital data and that has at least 5,000 servers, occupies at least 10,000 square feet, or has an electricity demand of at least 100 megawatts.

There’s a lot to unpack here, but I want to call attention to a few highlights. First, neither the energy nor water costs could be shifted onto residential customers. None of the other data center bills directly limit cost-shifting for water. 

Second, energy infrastructure costs could not be passed along to residential customers. With average customers like you and me already on the hook for  $1 billion worth of costs related to power plants that aren’t even in operation anymore, this is key.

Third – and this is a big one – the bill would require the repeal of the existing sales tax exemption for large data centers in state law in order for data centers to continue operating here. Our neighbors are sick and tired of corporations getting massive handouts that are worth more than most of us will make in a lifetime. It’s time to stop this race to the bottom on taxes for corporations and the super-rich.

Fourth, data centers would need to be approved by a referendum of voters in the municipality where the data is built. This critical nod to local control is conspicuously absent from the other data center bills. If a community does not want a data center in their borders, they should have the ability to block it, and vice versa.

Fifth, the bill would require legislation to be passed that restores the Public Service Commission’s Integrated Resource Planning (IRP) authority. This is a fancy way of saying that state regulators would be able to hold public utilities accountable for keeping their promises. When WE Energies claims it’s going to close a coal plant in the future to get good press, it cannot then quietly decide a few years later to keep it open indefinitely. . If a utility tries to over-build power plants to achieve a higher rate of return for its shareholders, IRP could help put a stop to it.

Finally, the Pause to Protect Act would require 100% renewable energy for all power used by data centers in our state. With the federal government under the current President abandoning the fight against climate change, it is more vital than ever that the states take the lead in continuing the work to protect our species from the catastrophic effects of out of control climate change.

What comes next?

So what’s next for data center regulations in Wisconsin? Well, if you’re a WE Energies customer, there is a data center electric rate case pending before the Public Service Commission that you may be interested in. On Feb. 10, the PSC held virtual public hearings on a WE Energies “Very Large Customer (VLC)” rate proposal, and public comment closed on February 17. I testified against the proposal at the hearing because it did not do enough to safeguard residential ratepayers. You can view my testimony HERE.

Like AB 840, the VLC rate aims to prevent residential customers from paying increased rates due to the extremely high energy consumption of AI data centers. However, the way the proposal is written, it seems to codify that 25% of the costs could indeed be passed on to residential customers. In addition, there are insufficient safeguards to protect regular ratepayers from being on the hook for costs related to power plants that are no longer needed should the data center cease to operate.

Finally, the threshold to even qualify as a “Very Large Customer” is set two-and-a-half times higher in this rate proposal compared with the Republican-backed AB 840 and the Democrat-authored SB 729. (250 megawatts vs 100 megawatts). This means some data centers would continue to pay a lower rate, even if their power usage contributes to higher costs for residential customers down the road.

Whether this rate proposal passes or not, additional safeguards are needed at the state level to protect communities and our neighbors against the harmful effects. You may wish to contact your state legislator to express your support for SB 729 or the Pause to Protect Act, which does not yet have a bill number, but should have one in the next week or so. You could also speak more generally about what your concerns with data center development are, and what you’d like to see the state do in response.

Finally, as I continue to work with members of the legislature from both parties to find common ground on future data center and utility cost regulations in Wisconsin, I want to hear from as many Wisconsin residents as possible as to what their top priorities are. To that end, I hope you will take a moment to take our DATA CENTER SURVEY by clicking the image below.

If there’s one lesson that could be learned from the 5-plus hours of testimony at the public hearing on data centers in the State Senate, it’s that nobody, even the most ardent data center supporters, believe the status quo is acceptable. People from both sides of the aisle want more safeguards than we have now.

It’s also true that the longer we wait to put data center regulations in place, the less effective they will be and the more potential harm can be caused in the interim. I thank you for your attention to this important issue. Wishing you and your loved ones a safe and joyful last month of winter.