VA's Data Center Talk Must Get Real to Meet Big Tech's Climate Goals

Are Virginia’s lights about to go out, her clean air and climate laws about to be dismantled, and our household electric bills about to skyrocket?

You couldn’t be blamed for thinking so, based on nearly daily news reports about exploding electric load growth driven largely by hyperscale data centers.  

The cacophony in Richmond around Virginia’s data center boom implicitly contemplates that each of those outcomes is our destiny, as we undertake a statewide accommodation of this voraciously energy-hungry customer class. Indeed, one might get the impression that we’re fated to contort Virginia’s entire energy apparatus around data centers, and that to do so we must also cast our climate and clean energy laws by the wayside. 

But has our data-hungry AI age really put the Commonwealth over a barrel?

Have we somehow already been obligated to not only farm out our entire energy system, but also to jettison our clean air laws? And potentially pay for an array of new fossil power plants, all to ensure a single industry can further expand here in Virginia with a seemingly endless demand for power, to feed an infinite global appetite for data? 

That’s an audacious notion. 

So, let’s take a closer look at the core assumptions embedded in Richmond’s still-nascent and somewhat hyperventilating discourse around data centers.

Implicit in this high-decibel cross-chatter about data centers is a striking, sweeping assumption, at least in some quarters, that we simply have no choice: drop everything, and plug in those data centers wherever they pop up. And build all that around-the-clock capacity they’ll need, to deliver the staggering quantities of juice they call for, over any substations, transmission, and distribution upgrades that’ll be needed to keep the data centers humming away. 

Why? Well, because they asked! 

This notion of fait accompli appears to be that it’s Virginia’s fate, to passively usher in and pay up to double in size the energy system we already paid for, to be fed with a potentially one-plant-per-year buildout of new fossil plants.

That very consequential assumption, that Virginia is simply wriggling around helpless on a really big hook, is not just a passing notion. The Virginia-is-open-for-any-and-all-data-center-business assumption is particularly implicit in this week’s much-heralded data center report from JLARC (Virginia’s Joint Legislative Audit & Review Commission). That impressive report, a sobering document to be sure, casually throws around, with abandon, the striking assumption that our utilities are “legally obligated” to honor any new data center request to be hooked up and fed power. The JLARC report also casually surmises that Virginia might simply pre-emptively abandon, wholesale, the Commonwealth’s climate and clean energy law, apparently to accommodate some data centers running afoul of Virginia’s clean air statute that is, um, legally required.

Hurtling toward such a stark, data center-dominated future is heady stuff, and Richmond policymakers are still wrapping their minds around where this is all going.

So, is this crisis real? 

Is Virginia really committed to walking down the path to endless data center growth, and to building the massive new fossil generation buildout it requires, and to the stratospheric air pollution and bill increases that would follow?

Absolutely not. 

Folks really need to pause, take a step back, take a breather, and look around to take stock. If we do, we’ll see that longstanding Virginia institutions and laws are firmly in place, to accommodate and oversee whatever orderly buildout of data centers that Virginia determines for herself is appropriate, desirable, and in comportment with already-existing law.

In short, we got this. 

The Lynchpin of an Orderly Data Center Buildout: The SCC

First and foremost among the institutions, laws, and planning processes Virginia already has in place to take on sensible and orderly data center development, is the SCC. 

The SCC’s very purpose, under both the Constitution and its foundational regulatory principles embodied in statute (primarily Chapter 1 and Chapter 10 of Title 56), is to protect existing Virginians – residential customers, small businesses and low-income folks in particular – as well as our broader economy, from unjust or unreasonable costs.  

Just as important, the SCC is charged—complementing the long-established regional and national long-term reliability planners at the FERC-jurisdictional PJM RTO as well as NERC—with ensuring our energy system is reliable. As a result, blindly plugging in one new data center after another until the lights might go out, therefore, is not something the SCC can or will let happen.

A Misconstrued Source of Regulatory Confusion: The Duty to Serve

In these early days of data center discourse, there is one particularly troublesome source of inadvertent misinformation. Some chatter appears to confuse or conflate the SCC’s abiding duty and authority to ensure utilities treat their customers justly and fairly, with the “duty to serve” requirement by which utilities must abide. Under that longstanding principle, utilities must treat fairly, and therefore provide service to, anyone in their service territory who requests it, rather than withhold provision of service to anyone the utility might deem unprofitable. 

From that standing policy of nondiscrimination, the “obligation to serve” has been cited by some as the overriding tenet of how Virginia must respond to the onslaught of data centers: if they ask a utility for power, well, there is a duty to serve, right?  So hook ‘em all up! Right?

Wrong.

For starters, a utility’s duty to serve is not an all-consuming monolith that swamps all other considerations: that principle of fairness exists equally alongside other bedrock regulatory principles embodied in Virginia’s statute. First and foremost is that SCC duty to protect Virginians against unjust and unreasonable costs. While quite new as a distinct customer class, a hybrid of industrial and commercial, there is nothing magical about data centers that overrides the SCC’s longstanding, bedrock enforcement of just and reasonable rates. 

Additionally, the origin and intent of the “duty to serve” must inform data center discourse as well.

A “Duty to Serve” Endless Data Centers Is an Untenable & Unsupportable Contradiction

The “duty to serve” is founded upon centuries-old common law, and has long been enshrined in Virginia statute as a pillar of citizen protection, for the most vulnerable Virginians out there. 

In the regulatory context, that generally means the ones that literally live past “the end of the line.” Think the grandmother in Southwest, living at the homeplace all the way up the head of the hollow; the farming family in Southside, living further out of town than anyone else; or the waterman whose family lives out on the very far end of a Tidewater peninsula, accessible only by ferry. The “duty to serve” was and is a social compact for them. 

These vulnerable, “last mile” Virginians are, by nature of their location (as well as low energy use), more expensive to serve, because they’ll never cover the cost of running and maintaining the line out to their home. Absent the duty to serve, utilities would be sorely tempted to deny service to these unprofitable Virginians. But rather than let anyone languish in the dark, in spite of living in the electric age, the “duty to serve” simply demands that, out of social and economic fairness, regulated utilities, as a core part of the regulatory compact, serve everyone in their service territory. The marginal cost of doing so is then allocated across the entire customer class (in this case, residential).

In the data center context, the duty to serve may well be appropriate for certain specific customers, according to the SCC’s expert oversight authority. But absurdly stretching the principle to justify endlessly plugging in an all-consuming statewide buildout of a new data center customer class, and swamping existing customers with that cost, is not just a staggering case of wagging the dog. It represents a facially untenable misconstruing – even a perverse reversal – of the duty to serve.

Indeed, utilities elsewhere have acknowledged that their duty-to-serve does not obligate them to serve large data center loads: a sister utility of Virginia’s Appalachian Power, AEP Ohio, recently halted outright all new data center connections, until, as Virginia is currently assessing, it can designate data centers as their own customer class that pays the costs it incurs the utility.

That’s a sensible approach we are correct to consider in Virginia, as part of the conversation we should be having in Richmond: what does a responsible, sustainable data center customer class and related buildout actually look like and entail?

The Conversation Policymakers, Stakeholders—and Data-Center Companies—Should Be Having

Constructive problem solving has so far been somewhat displaced by the breezy assumption that a “duty to serve” obligates all of Virginia to contort its energy system and jettison its environmental law, to accommodate any new data center customer that pops up. That, rather than thoughtfully enforcing law in a balancing of societal interests, SCC commissioners just sit there, like potted plants in a row, passively looking on while a chaotic, headlong data center and fossil plant buildout falls out of the sky and into their laps, for their ministerial stamp of summary approval. 

Absolutely not.

SCC commissioners are eminently-qualified judges with deep subject matter expertise – with a professional, expert Staff supporting them. And that expertise, judgement, and authority includes assessing what a just and reasonable data center buildout looks like. It’s just that topic, in fact, that the SCC is delving into at its Data Center Load Technical Conference next week, to determine, for example, whether transmission and generation costs caused by data centers should be directly assigned to a new data center customer class.

The SCC is in the best position to consider a wide-range of regulatory options. In addition to its charge of ensuring just and reasonable rates, the SCC has a wide-ranging “legislative” function, by which it may set whatever policies it deems appropriate to advance its duties. Like a legislature, the SCC can “pass” policies of their choosing and expertise, and bind the utilities to those policies (so long as the SCC’s “legislative” policy promulgations do not conflict with or exceed guidance already prescribed by the General Assembly).

That more thoughtful deliberation will certainly include applying a fresh regulatory paradigm for data centers, that may well designate them a new customer class, one that under the cost causation principle pays its own way for entry into and use of Virginia’s energy system, and in a way that accounts for Virginia’s standing air emissions law.

Yes, data centers have to locate somewhere, and that place may well be Virginia, subject to our laws and best interests. But data is a global commodity, and if paying their own full freight to access our grid means some data centers locate elsewhere, knowing that Virginia residents won’t be subsidizing their location here, then that is a well-regulated and therefore efficient marketplace at work. And the price global citizens all pay for the flow and consumption of data will adjust accordingly, maybe up, maybe down, but Virginia’s interests will be protected.

Both Virginia’s and Data Centers’ Climate Commitments Can Be Mutually-reinforced

Sometimes overlooked in Virginia’s early, “all heat, no light” data center policy discussion is the crucial role hyperscale data center companies have to play.  If data centers want to locate in Virginia, they must not only absorb the grid and generation costs they cause. Just as important, they must also be partners in abiding by Virginia climate law. 

For many, this will work quite well: good faith data center owners, with actual, non-greenwashed climate goals, will have the best of both worlds in Virginia: they get to locate where they want (Virginia), while also hitting their own decarbonization requirements through clean energy procurement and other innovations, in keeping with Virginia’s own statutory targets. A good example from Indiana is another AEP subsidiary, which in a settlement with Big Tech provides for cost protections to existing customers and the development of a “clean energy transition” tariff.

All policymakers, utilities, and stakeholders have a role to play here in rolling up our sleeves and crafting the 21^st century grid that can accommodate both load growth and statutory carbon emission reductions. We certainly have the tools to do so: data centers themselves can be aggressive and innovative in funding their own, additional clean energy supply and making onsite and grid-wide efficiency upgrade investments. 

At the same time, Virginia policymakers in Richmond could pursue a wide array of untapped solutions, that are there for the taking, to squeeze dramatically better performance and capacity from our grid. (These resources include: relentless demand response harvesting; battery storage and demand response paired with solar, and aggregated as dispatchable virtual power plants; diverse, universally-offered time-of-use rates; weatherization upgrades; storage-plus-renewable replacements at the same location as retiring fossil resources; transmission uprates and reconductoring; managed EV-charging and peak vehicle-to-grid deployment; grid-enhancing technologies; and comprehensive reform of Virginia’s increasingly moribund solar permitting regime.)

Absent those concerted efforts in Richmond and by data centers themselves, well, this isn’t going to work.  If we can’t (1) responsibly build out the necessary transmission and distribution infrastructure data centers require (both upgrades to existing and smartly-sited new projects); (2) rapidly deploy new/additional carbon free electricity supply, massively scale up battery storage and demand side investments, and make the aforementioned grid-wide innovations to meet that new demand; and (3) build in safeguards to ensure the cost of this buildout is borne by those new loads rather than other customer classes? Then it’s time to hit the pause button until those principles can be met in the Virginia context. And if they can’t? These companies should look elsewhere, until and when they can be met.  

That would be a crying shame. Because, while more responsible siting parameters to protect local interests still need to be crafted and enforced, the net benefits in Virginia from responsible data centers could be immense: for local governments, there is nothing better than found money. Increased tax revenues is invaluable—but only if those same data centers do not overwhelm their local water and energy infrastructure and other intrinsic local assets.

It’s clear that the SCC’s and other policymakers’ work has only begun. But if Big Tech partners in ensuring Virginia has a truly 21st-century clean energy grid, that enables steadily decreasing air pollution, this unique industry will prove to be a good neighbor in the Commonwealth.