New Jersey lawmakers are considering legislation that could reshape how data centers pay for electricity in the state, potentially shifting costs away from residential customers and onto the power-hungry facilities themselves. The move reflects a growing national trend as states grapple with rising energy rates and the increasing demand from the rapidly expanding data center industry.
Assembly Bill A-7961R, currently before the Assembly Telecommunications and Utility Committee, proposes the creation of a separate tariff for “large load customers” – defined as commercial entities with a monthly demand exceeding . This effectively targets large data centers, which are significant consumers of electricity.
The core aim of the bill is to prevent residential and small business ratepayers from subsidizing the electricity costs of these large industrial users. As Assemblyman Dave Bailey (D-Gloucester, Salem, Cumberland) stated, the legislation seeks to ensure that “those costs aren’t being unfairly passed on to everyday New Jersey residents.”
Under the proposed legislation, electric public utilities would be required to file an application with the New Jersey Board of Public Utilities (BPU) within of the bill’s enactment to establish this new tariff. The tariff’s design must adhere to three key principles:
- Ensure other utility customers do not subsidize large load customers, with all costs attributable to these large users assigned directly to them.
- Protect other customers from potential “stranded costs” – financial losses incurred if a utility invests in infrastructure to serve a large load customer who subsequently reduces or ceases operations.
- Incentivize large load customers to improve energy efficiency, potentially through technologies that capture and reuse waste heat.
Within one year of the bill’s effective date, utilities would be required to apply the approved tariff to all qualifying large load customers within their service area. This timeline suggests a relatively swift implementation, should the bill become law.
A significant component of the bill addresses the financial risk to utilities. It mandates that large load customers provide financial guarantees, covering at least of their requested service, for a minimum period of . This provision aims to ensure that utilities are not left with unused capacity and associated costs if a data center’s energy needs fluctuate or diminish.
The move in New Jersey aligns with a broader trend across the United States. According to reports, electricity rates have risen by over since in many markets, prompting states to re-evaluate how electricity costs are allocated. Virginia is also considering similar legislation, Senate Bill 253, to levy new tariffs on large data centers.
The balancing act for states is to manage rising energy costs while remaining attractive to data center developers. These facilities bring significant economic benefits, including increased tax revenue and construction jobs. However, the growing energy demands of data centers are putting a strain on existing infrastructure and contributing to higher prices for all consumers.
New Jersey Governor Sherrill’s past commitment to reducing electricity rates for residential customers suggests a high likelihood of support for this legislation, should it reach her desk. The bill reflects a growing political pressure to address energy affordability and ensure a fair distribution of costs in a rapidly changing energy landscape.
The legislation’s success will likely hinge on the details of the tariff design and the BPU’s ability to strike a balance between protecting ratepayers and fostering continued investment in the data center industry. The outcome in New Jersey will be closely watched by other states grappling with similar challenges.
Duane Morris, a law firm actively tracking developments in the data center and digital infrastructure sectors, is providing ongoing analysis of these legislative efforts. The firm’s team of lawyers offers advice on data center-related legal and regulatory issues, real estate matters, and incentive programs.
