Regulatory bodies across many regions continue to operate under outdated frameworks, prioritizing cost containment over strategic investment. This traditional stance must evolve. Utility commissions should see themselves not just as oversight entities, but as active contributors to regional economic advancement, creating conditions where energy infrastructure supports business expansion, job creation, and technological progress. To achieve this, they should authorize utilities to recoup expenses tied to grid upgrades that stimulate broader economic development, rather than limiting recovery to projects initiated solely by specific customer requests for power.
The surge in demand from data centers is transforming electricity consumption patterns nationwide. Driven by artificial intelligence, cloud-based services, and the expanding digital economy, there is now a sustained need for facilities with massive power requirements. New developments frequently propose loads of 50 MW, 100 MW, or even surpassing 300 MW. This is not a short-term spike, but a fundamental, long-term shift in how electricity is consumed.
The magnitude of this transformation is significant. According to BloombergNEF, global data center power capacity is expected to grow from 81 gigawatts in 2024 to 277 gigawatts by 2035—a more than threefold increase.
For regions aiming to attract investment, data centers represent far more than increased energy use. They generate high-quality employment, boost local tax income, and catalyze the growth of supporting industries. In many respects, today’s data centers serve the same foundational role that steel plants and factories once did—anchoring local economies and symbolizing technological leadership.
A clear example can be found in Loudon County, Virginia, often referred to as “data center alley.” As reported on the county’s official website, these facilities now contribute nearly half of all property tax receipts. In 2024 alone, they added $16 billion in assessed value, bringing the total to $41 billion, and supported over 12,000 jobs locally. Their presence has allowed the county to reduce its real estate tax rate from $1.285 to $0.805 per $100 of assessed value since 2008, while simultaneously expanding public services. The result: $26 in tax revenue generated for every $1 spent on service delivery.
The issue is no longer whether data centers will be constructed, but how and where they will be developed. The answer hinges largely on how regulatory agencies define their responsibilities.
Historically, utility commissions have controlled which grid investments qualify for cost recovery. This model, developed in an earlier era, aimed to prevent excessive infrastructure spending and protect ratepayers. While this safeguard remains vital, rigid application of these rules can hinder investments crucial for capturing new economic opportunities.
If regulators deny recovery, utilities become reluctant to invest. If utilities delay, data center developers look to other locations. The outcome? Missed growth for communities, reduced tax bases, and fewer benefits for consumers.
This dynamic reveals a deeper truth: regulatory decisions are not only about equitable rate design—they are also strategic choices affecting regional competitiveness.
Commissions must therefore expand their outlook. Like state governments offering tax breaks, workforce training, or infrastructure grants to attract businesses, regulators should support grid development as a platform for economic expansion.
This means recognizing that a robust power network is not merely a utility function, but a strategic economic asset. Reliable and cost-effective electricity is essential in today’s economy, and regions that can deliver it will lead in attracting investment and employment.
It also means treating innovation as essential, not optional. Smart grid technologies, distributed energy systems, and adaptive transmission planning should be integrated into regulatory policy. Regulators should establish clear pathways for utilities to pilot, scale, and recover costs for modern solutions that meet emerging demands.
Currently, most commissions only allow cost recovery for grid projects directly tied to confirmed, near-term load increases. While this has prevented unnecessary construction, it does little to proactively attract new demand. This approach is increasingly unworkable, as data center operators typically require power within 18 months of selecting a site.
Utilities generally cannot build generation or transmission infrastructure that quickly, especially given existing grid constraints. They can, however, prepare in advance—if they are assured of recovering their investments. That assurance lies within the authority of commissions, which can approve recovery for proactive, well-managed, and reasonable infrastructure expansion.
This evolution in regulation does not require abandoning consumer protections or affordability. It calls for balancing those priorities with the understanding that underinvestment carries real economic costs. When data centers choose other regions, local economies lose tax income, states lose influence, and residents miss out on the ripple effects of growth.
Progressive regulation demands a shift in mindset. Instead of asking, “How little can we allow in cost recovery?”, commissions should ask, “What investments will secure long-term prosperity while protecting ratepayers?”
The answers won’t always be straightforward. They will require coordination among utilities, regulators, and economic development agencies. They will demand transparency, careful planning, and community engagement. But maintaining a narrow regulatory perspective risks leaving entire regions behind in the global competition for digital infrastructure.
At its heart, this is about perspective. Regulators don’t have to be just arbiters in utility-consumer disputes. They can be stewards of a critical driver of growth: the electricity grid.
By embracing this broader role, commissions can help position their states as leaders in the digital age. They can ensure that reliability, innovation, and affordability work in tandem to attract investment. They can turn data centers from a regulatory burden into a powerful engine of economic development.
The grid has long powered homes and businesses. Now, it has the potential to fuel prosperity on a scale comparable to past industrial revolutions—but only if regulators move beyond outdated rules and recognize their role in shaping economic futures.
— news from Vinson & Elkins LLP
— News Original —
Data Centers as Engines of Economic Growth
Yet, the mindset of many regulatory commissions remains anchored in the past, viewing their role as one of limiting costs rather than proactively enabling investment. That mindset needs to change. Commissions should think of themselves not only as regulators but as economic developers, fostering an environment in which the power system propels business investments that strengthen communities and drive innovation. In doing so, commissions should permit utilities to recover costs of grid investments that promote economic development, not merely investments undertaken in response to specific requests for electric service. n nThe Data Center Demand Surge n nIn every corner of the country, data centers are reshaping energy demand. Artificial intelligence, cloud computing and the digital economy have converged to create an unprecedented need for power-hungry facilities. New projects routinely propose loads exceeding 50, 100 or even 300 MW. This is not a temporary surge — it is a long-term structural shift in electricity demand. n nThe scale of this growth is striking. Global data center power capacity is projected to more than triple — from 81 GW in 2024 to 277 GW by 2035, according to BloombergNEF. n nFor states and regions competing for economic development, data centers offer more than just power loads. They bring high-value jobs, local tax revenues, and the multiplier effect of attracting related businesses. In many ways, a new data center today plays a role similar to what steel mills and manufacturing plants once did — anchoring regional economies and signaling innovation. n nOne need only look at the economic growth in Loudon County, Virginia, the heart of what is called “data center alley,” to see what the “tech economy” can do. According to the county’s website, data centers now account for nearly half of all property tax revenues, generating $16 billion in new value in 2024 alone, for a total of $41 billion, and supporting over 12,000 local jobs. Their presence has enabled the county to lower its real property tax rate from $1.285 to $0.805 since 2008, while also funding expanded public services, the county says. This has resulted in $26 in tax revenue generated for every $1 in services provided. n nThe question is not whether data centers will be built; the question is how they will be built. The question is where. And the answer can be driven by how utility commissions frame their role. n nThe Regulatory Bottleneck n nTraditionally, utility commissions determine the amount of cost recovery a utility may earn for grid investments. This structure, born of a different era, was designed to prevent overbuilding and protect consumers from unnecessary costs. That remains an important function. But when applied rigidly, it risks stifling forward-looking investments that are essential to capturing economic opportunities. n nIf commissions restrict recovery, utilities hesitate to build. If utilities hesitate to build, data centers look elsewhere. The result: missed opportunities for states, regions and consumers who could otherwise benefit from growth. n nWe should recognize this dynamic for what it is: regulatory decisions are not just about fairness in rate design. They are also choices about economic competitiveness. n nThis is why I maintain that commissions must broaden their perspective. They should view themselves as partners in economic development. Just as states provide tax incentives, workforce programs and infrastructure funding to attract new businesses, commissions should embrace a role that fosters grid investment as a platform for growth. n nThat means recognizing that grid strength is not just a consumer protection; it is an economic development strategy. Power is the currency of the modern economy and regions that can deliver it reliably and affordably will win the competition for jobs and investment. n nIt also means treating innovation as a necessity, not a luxury. Advanced grid technologies, distributed energy resources and flexible transmission planning must be part of the regulatory toolkit. Commissions should create pathways for utilities to test, scale and recover costs for forward-looking solutions that meet new demands. n nCommissions have traditionally permitted utility cost recovery only for necessary investments undertaken in direct response to identified and specific load growth. This approach has been successful in preventing grid overbuilding. But it does little to attract load growth. And it is impractical now, as data centers require energy within 18 months of identifying a site for a new facility. n nUtilities by and large cannot build generation or transmission on this timeline, particularly not when the grid is as stressed and constrained as it is presently. Utilities can proactively expand their grid to accommodate this load growth, but only if they have financial security that ensures they will recover the costs. That is the domain of commissions, which can guarantee cost recovery for proactive, controlled and reasonable grid build-out. n nA Call for Forward-Thinking Regulation n nThis shift does not mean abandoning consumer protection or ignoring affordability. It means balancing those values with the recognition that underinvestment has its own costs. When data centers choose to locate in other regions, local economies lose tax revenue, states lose influence and consumers lose the broader benefits of economic growth. n nForward-thinking regulation requires a change in mindset. Instead of asking, “What is the minimum cost recovery we can allow?” commissions should ask, “What investments will secure our economic future while protecting consumers?” n nThe answer will not always be simple. It will require collaboration between utilities, regulators and economic development agencies. It will require transparency, careful planning and engagement with communities. But the alternative — clinging to a narrow view of regulation — risks leaving states behind in the global race for digital infrastructure. n nAt its core, this is a question of perspective. Regulators need not be just referees in disputes between utilities and consumers. They can also be stewards of a critical enabler of economic growth: the electric grid. n nIf commissions embrace that role, they can help position their states as leaders in the digital economy. They can ensure that reliability, innovation, and affordability work together to attract investment. They can transform data centers from a regulatory challenge into an economic engine. n nThe grid has always powered our homes and businesses. It now has the potential to power prosperity on a scale that rivals past industrial revolutions. But only if regulators think beyond the rulebook and embrace their role as economic developers.