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A bill requiring electric utilities to protect households and small businesses from soaring costs caused by hyperscale data centers passed New Jersey’s General Assembly on Monday.
The bill would require public electric utilities in the state to design special rate structures for data centers using at least 100 megawatts of electricity, enough to power tens of thousands of homes. These rate tariffs would prevent other utility customers from subsidizing costs associated with providing power to these large data centers or paying for stranded costs if the data centers shut down or use less power than expected.
Assemblyman David Bailey Jr., a Democrat representing Cumberland, Gloucester and Salem counties who sponsored the bill, compared it to a prenuptial agreement.
“This is not an anti-data center bill,” Bailey said during a committee hearing earlier this spring. “We want to be married to data centers. We want them to come here. … [This bill] says, ‘You want to come here? Pay for what you say you’re going to do. … Put your money where your mouth is.’”
New Jersey customers saw their electric bills increase by as much as 20% last summer. The spike was driven by a statewide electricity supply auction that reflected an increase in capacity costs on the regional grid. Capacity costs have skyrocketed recently in part due to rising demand projections from data centers throughout the region.
How the ‘prenup’ would work
Brian Lipman, director of the New Jersey Division of Rate Counsel, which advocates for ratepayers, testified during a meeting of the Assembly Telecommunications and Utilities Committee earlier this spring that Bailey’s bill would force large data centers to pay for any grid infrastructure upgrades needed to support their power demand, such as new wires, transformers or substations.
“Right now, the way that would work is all ratepayers would subsidize that,” Lipman said. “The data center comes in and needs $100 million of upgrades on the [utility’s] system. … That is then put into rates, and all ratepayers are going to share in that. What this bill would do is say, ‘No, we’re not doing that. If you cause $100 million dollars worth of cost, you’re going to pay that $100 million.’”
But Bailey’s bill would only address the costs of delivering electricity to customers, not increases in the cost of the electricity itself driven by growing demand, Lipman said. Last year’s 20% jump in electricity bills in New Jersey reflected an increase in the electricity supply costs, which are determined by regional market forces.
Lipman said rising electricity supply costs will need to be tackled collectively by PJM Interconnection, the regional grid operator, through legislation that would require data centers to supply their own power generation.
“If we require a data center to bring its own new generation, that would solve that second problem,” Lipman said. “The issue with that is if we pass that here in New Jersey, and no one else passes it, then we’re kind of screwing New Jersey because they’ll just go across the river to Pennsylvania. We’ll have the same impact, [but] we won’t get the economic benefits. So we really need our partners in other states in PJM to work with us on that.”