Data centers powering the AI boom are pitting states against each other

By David Wright, CNN

(CNN) — Just before her victory this fall, New Jersey Gov.-elect Mikie Sherrill jabbed at nearby Virginia, which also had a governor’s race, over its booming data center market.

“Right now, we need to produce power here in our state … because Virginia has a million data centers which are sucking all the power out of our market,” Sherrill said at one debate, “We need to produce here, lower costs here, and stop putting the costs on the ratepayers of New Jersey.” (Sherrill was exaggerating: Virginia has 666 data centers, according to the Data Center Map, while New Jersey has 82.)

A CNN reporter read Sherrill’s quote just before the November 4 election to Virginia Gov.-elect Abigail Spanberger. Sherrill and Spanberger are longtime friends and former roommates.

“Mikie!” Spanberger responded. “Go ahead. We’ll take the revenue.”

While Spanberger and others have celebrated the economic benefits of data centers, the incoming governor also noted in her victory speech that tech corporations would have to develop sustainably and cover their costs, with energy bills spiking across the region.

Democrats campaigning on affordability are confronting the demands created by data centers that create jobs, often in areas that have long needed them, but that also suck up power. And the issue is converging with a national party debate about how to embrace economic development and growth — the “Abundance” mindset.

Officials and candidates across the country are lamenting rising power bills, water usage and the potential climate impact of the AI boom. But they’re hard-pressed to turn down job-creating investments that could go to their neighbors instead – a tension that’s felt beyond the East Coast.

“We are, by the nature of the grid, connected to our neighboring states,” said Raúl Torrez, the Democratic attorney general in New Mexico. His state is next to Texas, which has 413 data centers, according to the Data Center Map, compared with New Mexico’s 22.

“I will say that it is very difficult to be right next to a state that just takes a maybe less aggressive approach in terms of protecting consumers,” Torrez said.

An interconnected problem

Thirteen states and the District of Columbia are connected to the same grid as New Jersey and Virginia. That grid, known as PJM, is the country’s largest, covering a swath of competitive political territory.

Some of the states on that grid are net producers of energy; others are net consumers. But the opening of data centers across nearly all of them is creating structural pressure on a shared system. Dominion Energy, Virginia’s largest utility, is set to increase rates by around 9%; in New Jersey, utility bills spiked by more than 20% this year. Communities across the region are protesting developments.

“We’re going to produce more energy and we’re going to lower energy costs. We are going to produce more energy here in Virginia and make sure that data centers pay their fair share,” Spanberger said during her victory speech.

But a review from the Virginia General Assembly last year laid out the scale of the challenge, even as it also found the data center industry contributes $9.1 billion in GDP to the state economy.

“The state could encourage or require data centers to take actions to help address their energy impacts by promoting development of renewable energy generation, participating in demand response programs, and managing energy efficiency,” the General Assembly review reads. “However, these actions would have only a marginal impact on decreasing data center energy demand.”

Pennsylvania Gov. Josh Shapiro, a potential 2028 presidential contender, outlined the challenge — and the escalating political stakes — at an energy conference in September. Utility rates in Pennsylvania jumped 5% to 12% statewide this summer.

“Let’s face it: Change is needed to keep energy costs low, bring new energy generation onto the grid more quickly,” he said.

Cutting across state lines

Data center campuses can offer a lifeline to communities eager for investment, promising jobs and tax receipts. They’re often developed in rural areas, far from traditional economic hotbeds. Microsoft, among the tech giants pouring billions into data centers, has touted its community development in Mecklenburg, a county in the southern portion of Virginia bordering North Carolina.

Another Microsoft data center opened in the industrial area once set aside for Foxconn, the Taiwanese technology giant that didn’t meet its initial commitment during Trump’s first term to open an electronic plant.

But that single data center requires more electricity than every home in Milwaukee, the state’s largest city, according to Mitchell Berman, a Democrat running for Congress in Wisconsin’s battleground 1st Congressional District next year.

“We don’t want to get in the way, or have too much of a regulatory burden. We need progress; that’s ultimately what drives our success in manufacturing, in AI and in the technology space,” Berman said. “But we have to do it within reason, and not at the expense of people in our communities.”

Carol Obando-Derstine, a Democrat running in Pennsylvania’s 7th District next year, said she was “hearing from a lot of people all the time, reacting to news of data centers.”

“What they are concerned about is the rising costs of utilities, what they pay for energy. When they see news of folks, these billionaire companies coming into the area, they are concerned about the impact it’ll have on their bills,” Obando-Derstine said.

Massachusetts Rep. Jake Auchincloss, a member of the House Committee on Energy and Commerce, said that “one guiding principle for policy around these data centers and their effects on the economy is, there needs to be strong local input on the terms and conditions.”

“As a general rule, my view is that the tech companies need to pay for the cost spillovers, particularly power and water,” he said.

But Auchincloss, like many lawmakers, said he wants to establish a balance between limiting costs and promoting development.

“There’s a lot of granularity here, so I’m hesitant to announce one national point of view — it changes community by community, and policymakers should be humble about that,” he said.

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CNN’s Edward-Isaac Dovere contributed to this report.