Ohio lawmakers introduce sweeping new data center legislation

This article was originally published by Ohio Capital Journal.

Ohio lawmakers unveiled a sweeping data center bill Tuesday that reins in incentives and addresses several other public concerns.

Drawing on testimony from the Select Committee on Data Centers, Ohio state Sen. Brian Chavez put together a laundry list of changes and then grafted them onto a measure originally meant to study the issue.

It’s a significant revision of state policy, touching on tax breaks, nondisclosure agreements, water use and testing, utility billing, and potential impacts on local governments. Despite some quibbles, lawmakers and witnesses found a lot to like in the initial proposal. But given the rapid timeline Chavez envisions for passage — potentially moving to a vote on the Senate floor one day after introduction — opportunities to tweak the language are scarce.

Ohio state Sen. Bill DeMora, D-Columbus, complained about the rapid timeline.

“Anything the legislature does in a swift amount of time ends up being bad for everybody,” he said, “because there are always problems with it.”

What’s in the Bill

Currently, data center projects can apply for an 100% sales and use tax exemption. It’s a discretionary program, but it has ballooned to roughly $1.6 billion in the last year. The proposal would generally cut that tax break in half, but projects that build on brownfields and bring their own power are eligible for a 75% tax break.

The bill also caps local property tax abatements for data centers at 50% and eliminates access to Ohio’s 30-year mega project job creation grant.

Data center developers’ use of nondisclosure agreements has drawn sharp criticism, and the bill includes a provision stating NDAs do not supersede public records law.

On the water use front, the measure directs the Ohio EPA to develop a water quality testing plan and report “any anomalies” detected as part of its water monitoring program. Data centers, meanwhile, would be required to track and report water usage to state regulators, and employ water conservation best practices including closed loop cooling systems.

Under the bill, the Public Utilities Commission of Ohio would create a data center rate class. Similar to the data center tariff the PUCO approved for AEP Ohio last year, the move is meant to apply costs associated with power generation, distribution and transmission to data centers.

Another protection included in the proposal is a surety bond equal to the average salary of all a data centers workers over a ten year period. Chavez described the provision as a way to give “financial insurance to local governments and communities impacted by the development.”

Quibbles & Pushback

The Ohio Manufacturer’s Association is currently challenging AEP’s data center tariff in the Ohio Supreme Court, and the group wasn’t thrilled with the idea of extending that approach to the rest of the state’s utilities.

Speaking on behalf of OMA, energy consultant John Seryak explained tariffs spread costs over an extended period of time rather than requiring developers to pay the full amount of their impact up front.

“We see that as pretty workable,” Seryak said, because there’s little opportunity to shift costs to other consumers.

But by implementing a separate rate class, those costs get spread over several years. Seryak pointed to one project in AES Ohio’s territory that would require roughly $230 million supplemental equipment.

“By the time that’s financed over 40 years, with return on equity and interest payments, it’s about $850 million. One project. This tariff would recover only $300 million of that,” he said.

Seryak also contends the tariff’s minimum demand payments could just juice the overall load forecast — forcing utilities to plan for greater capacity which is then spread across all ratepayers. Making data centers pay a minimum amount each month also reduces the incentive to use power efficiently.

Nolan Rutschilling from the Ohio Environmental Council Action Fund urged lawmakers to include explicit directives for the PUCO about an upcoming backstop auction.

The regional grid operator PJM Interconnection will hold the auction this September to secure 15 gigawatts of new power generation to meet growing demand driven by data centers. Those costs will get passed on, and PJM has urged states to develop regulations to ensure the costs are borne by data centers. Without them, the grid operator warned, “it is possible that these costs will be allocated to other consumers in the states, including residential consumers.”

“It’s entirely possible that this large load tariff could address that issue,” Rutschilling said, “but I’m urging just some clarifying language to ensure that it does and to ensure that the PUCO undertakes this matter in a timely fashion.”

Cathy Cowan Becker from Save Ohio Parks said there were many good provisions in the bill, but “we’d like data centers to meet their energy demand, at least some of it, with carbon free energy.”

Many facilities rely on diesel backup generators, “which are quite polluting,” she said while battery storage would generate no additional carbon emissions.

What’s Next

Quibbles weren’t confined to public testimony. DeMora complained the bill “does nothing” on nondisclosure agreements. Instead of banning them, it simply states an NDA can’t “prohibit or otherwise limit a public record from being made available.”

“They might say that you can find out if there’s an NDA,” DeMora insisted, “but the bill does nothing to stop NDAs.”

Meanwhile, Ohio state Sen. Jerry Cirino, R-Kirtland, worried lawmakers might be doing something that’s “a detriment to data centers coming in and negotiating with local governments.”

The Senate Energy Committee is lined up to advance the bill Wednesday morning, with the goal of voting the measure through the full Senate later that day.