Data centers are energy-intensive, running servers around the clock to power streams of computer computations. (Image: Adobe Stock)
North Carolina lawmakers on both sides of the aisle are working on regulating data centers this year, receiving guidance from Democratic Gov. Josh Stein and local municipalities.
The measures come about amid an anticipated data center boom in the state.
At the moment, North Carolina offers sales tax exemptions on data center purchases of electricity and equipment. These tax breaks were initially enacted in 2006 and expanded in 2015 as a way to attract more data centers as economic development projects.
“Now they’ve proliferated everywhere, so I don’t know that there needs to be an incentive to get more of them here,” Speaker Destin Hall (R-Caldwell) told reporters on Thursday. “Big companies like that, they ought to pay the same taxes as any other business.”
The North Carolina Department of Commerce estimates that data centers currently receive about $50 million each year in state sales and use tax exemptions. If all the data centers proposed for the state are built, that figure would balloon to about $450 million each year, Commerce estimates.
Last month, Stein asked the legislature to modify or repeal sales tax exemptions for data centers, citing the need to prevent consumers from rising energy costs and tax rates.
“We must be clear-eyed about the cost of data centers to ratepayers in terms of higher power bills, and clear about their cost to taxpayers in terms of lost revenue,” Stein said at a North Carolina Energy Policy Task Force meeting in April.
House Bill 1063, “Ratepayer and Resource Protection Act,” has a slate of Democratic representatives as sponsors, including Leader Robert Reives (D-Chatham).
It follows Stein’s request to repeal existing sales tax exemptions for data centers.
“It’s our state legislature’s job to create a comprehensive policy,” said Rep. Lindsey Prather (D-Buncombe), a primary sponsor of the bill. “It’s going to be consistent and predictable so companies know what to expect when they’re coming in, but it’s also going to protect consumers and those of us who pay utility bills.”
The bill would also require the owner of a prospective data center to submit a disclosure statement to the Department of Environmental Quality, North Carolina Utilities Commission and local governments where the data center would be located. Such documents would need to include projected electricity and water consumption.
The Utilities Commission declined to comment on pending legislation.
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SUBSCRIBEIn the upper chamber, Senate Bill 844, “Affordable Energy Omnibus,” has similar stipulations regarding approval from the Utilities Commission for future large-scale projects, and moves to protect consumers from electricity hikes due to subsidizing the massive data centers. At the moment, Sen. Woodson Bradley (D-Mecklenburg) is its sole sponsor.
Unlike the House proposal, Bradley’s bill would require data centers to be approved through a local referendum as well. It would also ban utilities like Duke Energy from suspending or disconnecting residential customers during extreme weather conditions, similar to Senate Bill 1027, “Extreme Heat/Ban Utility Disconnections.”
Other measures would set guidelines to protect consumers as well. House Bill 1180 or “Data Center Amendments” would require the Utilities Commission to enact tariffs on large-load data centers, aiming to prevent residential customers from bearing exponential energy rates.
With increasing opposition to data centers, some localities are seeking temporary bans so they can learn more.
Several municipalities across the state have enacted short-term pauses on data centers so they have more time to impose rules and regulations. Apex, Chatham County, Gates County and the town of Canton in Haywood County have all passed 12-month moratoriums in recent months.
The Durham City Council approved a 60-day break on Monday, allowing time for the city-county planning commission to review regulatory language. Harnett County and the town of Spring Hope in Nash County also voted for one-year moratoriums earlier this week, and Northampton County authorized a 32-month pause on data centers.
House Bill 1189, the “Datacenter Transparency Act,” would enact a two-year statewide moratorium on data center permits “to allow the General Assembly time to evaluate the extent and scope of impacts from datacenters proposed to be constructed,” according to the bill.
Stein urges review of data center tax breaks as cost to NC residents rise
But with artificial intelligence growing in prominence, AI backers say there’s a need for data centers to support the technology. They say a statewide moratorium could make the state less competitive for AI-related economic development.
Rep. Zack Hawkins (D-Durham), a member of the state’s AI Leadership Council, said the group hasn’t made any formal recommendations about data centers yet, but they’re having conversations.
They’ve discussed how to use artificial intelligence while making sure the power grid can handle the additional demand, he said.
“These partners are going to need to come up with a long-term sustainable plan to make sure that we can essentially build systems that not only take into account the growth that’s in North Carolina, but also the energy needs,” Hawkins said.
John Szoka, CEO of the Conservative Energy Network and a former North Carolina House member, said it’s a bad idea to allow local elected officials to ban data centers.
They’re a complex issue that towns or counties may not fully understand, he said.
“It’s the exact wrong way to go on this,” Szoka said at the annual State of Energy Conference. “Every time you pick up your phone and do a Google search, [you’re] using a data center.”
But Hall said he would not support a proposal to ban local moratoriums on data centers.
“I think it’s more of a local decision,” he told reporters. “In some areas, I can understand why they might not want them. In some areas where it’s not impacting those around them, maybe they’re fine with it.”
H1063, H1180 and H1189 sit in the House Rules Committee, and S844 awaits a hearing in the Senate Appropriations/Base Budget Committee.
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