Data centers use a lot of power. So much power, in fact, that new data center load has increased electricity prices in PJM (a regional power grid operator that covers a territory from Delaware to Chicago) by tens of billions of dollars.
New England has been partly protected from this buildout of data centers because data centers tend to be built where power is cheap, and our region has some of the highest energy prices in the country. But as data centers take up locations in historically cheaper places like PJM and Texas, there is still a risk that more could be built in New England, driving up our energy bills.
There has been a lot of discussion in Massachusetts on the topic of data centers, specifically around the role they play in the economy, their resource and land use issues, and how they should be regulated. In this blog, we discuss some of this discourse around data centers in the Commonwealth and provide some potential tools and policy solutions to ensure that local communities are not negatively impacted by any potential data center development.
Data Center Action in Massachusetts & Beyond
One of the most notable recent decisions about data centers in the Commonwealth occurred in late June, when Governor Maura Healey announced that the state will be pausing accepting data center sales tax exception applications until there are stronger protections in place to ensure Massachusetts communities are not harmed by potential future data center development. We released a blog last August discussing this sales tax exemption for data centers, which was signed into law in November 2024, where we detailed why this exemption could be potentially harmful for Massachusetts communities.
At the same time, the Healey Administration also released a framework that lists expectations for data centers that want to do business in Massachusetts. It highlights important considerations such as suggesting that data centers procure 100% clean energy to meet their electricity demand, creating water protection standards, requiring community benefits agreements, and more. Currently, this framework is not a legally binding set of requirements for data centers. However, these expectations listed in the framework have been mostly written into the Senate version of the energy affordability bill. The energy affordability bill is now being negotiated by the House and Senate in a conference committee where they will decide what ends up in the final version of the bill. We recently wrote a blog on what we liked in the Senate version of the bill and what possible next steps are.
The pause on data center sales tax exemptions and the development of a framework of expectations for future data centers indicates a more cautious approach being taken by the administration. However, we believe that the framework and energy affordability bill need to go further in ensuring protections are in place that cannot be circumvented by data center developers. For example, neither the framework nor the amendment to the Senate energy affordability bill specify that data centers cannot use fossil fuel backup generators, which means that developers can deploy diesel generators that can adversely impact the public health of local communities.
We signed on to letters alongside several allies to the Senate Committee on Economic Development and Emerging Technologies as well as the conference committee that is actively working to reconcile the House and Senate versions of the energy affordability bill. In these letters, we ask for more explicit protections against the use of fossil fuel generation, preventing water rate hikes, and requiring more transparency from data center developers. Making sure these specific guardrails are written into the final version of the energy affordability bill is vital to protecting Massachusetts residents from the potential downstream effects of data center development.
At the municipal level, several cities and towns have taken matters into their own hands. Both Westfield and Lowell have enacted one year data center moratoriums, meaning there can be no further data center development during that time period. The moratoriums do not affect projects that have already been approved or built, which means Massachusetts's largest data center, located in Lowell and operated by the Markley Group, will not be affected by the pause in development and approval. The Markley Group is attempting to push back on the regulation, filing a legal challenge against Lowell, claiming that the moratorium should not affect their “pre-existing plans” to expand their operations in the area.
The City of Holyoke took it a step further by banning any future data center development indefinitely. These moratoriums and bans on data center development demonstrate a growing concern from residents about how data centers may be doing more harm than good, especially to their local communities.
Protecting Ratepayers from Data Centers
There are two ways the introduction of new large electricity users can increase bills. The first is by triggering the buildout of new electric infrastructure like transmission and substations, which increase utility distribution prices. However, it is worth noting that, in theory, utility costs that are caused by industrial customers are supposed to be paid for by industrial customers, although in practice that doesn’t always happen. Even if residential customers are shielded from rate increases after data centers are built, there could be a significant cost impact on pre-existing commercial and industrial customers that have already been paying taxes and creating jobs.
The second area of bill impact, and the one our region has far fewer safeguards against, is data centers' impact on supply costs. New England has a market for wholesale electricity that operates under the principle of supply and demand. If a data center increases demand, electricity prices for everyone will rise as a result.
Fortunately, there are several policies Massachusetts and Rhode Island can deploy to protect residential customers from the high bills that could come from reckless data center development.
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Policy Solutions
BYOCP (Bring Your Own Clean Power)
One option to handle the supply impacts of data centers is to require them to build their own power supply, thus keeping them out of the general power markets. By requiring that this power is renewable, it ensures that any new data center development will be emissions-free. The BYOCP approach is often paired with a prohibition on fossil-fuel-powered backup power. BYOCP has been adopted in the Senate energy affordability bill, but more specific restrictions on the use of fossil-fuel backup generation need to be considered as well.
Large Load Tariff
One common feature of utility price setting is to break customers into classes (such as residential, commercial, industrial) and then attempt to set tariffs for those classes in such a way that no class of customer is subsidizing another class. The House version of the energy affordability bill included a section requiring the creation of a data center-specific tariff. This would give the state’s Department of Public Utility a powerful tool to ensure the costs data centers impose on the grid are paid for by data centers. There could also be benefits in creating a new rate class dedicated to data centers that has more defined guidelines for cost sharing on new infrastructure that will need to be built to accommodate their demand.
In Rhode Island, the Public Utilities Commission recently voted to require Rhode Island Energy to file a large load tariff by the end of the year that would help protect customers from cost shifts and grid reliability issues, providing a model that Massachusetts could follow.
Reporting
To improve clarity of how much data center development is upcoming in the pipeline, electric utilities should publicly report the number and size of inquiries they are receiving from developers. This information should be presented in the already required Electric Sector Modernization Plans (ESMP) biannual reports. The electric utility companies have pushed back on this kind of reporting due to confidentiality issues, but have indicated it might be possible to do high-level reporting for speculative load broken out by class and size.
P.S. We will be working with Rhode Island legislators as well to address data center concerns in the Ocean State's 2027 session.
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