Emerging data centers: New TN law to protect ratepayers goes into effect in July

NASHVILLE, Tenn. (WZTV) — A new Tennessee law aimed at protecting utility customers from the growing energy demands of data centers will take effect in July.

The legislation comes as more than 60 data centers power artificial intelligence and other cyber operations across the state, with about one-third located in the greater Nashville area. As the race to build and power AI infrastructure accelerates nationwide and globally, Tennessee lawmakers say they’re working to ensure ratepayers are not saddled with the added costs of serving these massive facilities.

“We want to have data centers. But we want to put guardrails around that to protect our ratepayers,” said state Rep. Ed Butler, R-Rickman, during a legislative committee hearing in March.

Under the new law, data centers must pay for any new infrastructure required to support their operations, including substations and other power-related upgrades. Utilities are prohibited from passing those costs on to residential and business customers.

“In the rural areas they’re putting a lot of these. And we have had a lot of increased utility bills,” said state Rep. Dennis Powers, R-Jacksboro, during the same March committee hearing on the legislation.

Powers questioned if data centers could be contributing to ratepayer costs. That question wasn’t clearly answered. Regardless, legislators voted the measure through, and Gov. Bill Lee signed it into law to help prevent that from happening.

“If there was a substation that was needed to be put in to provide power for this data center, then the data center would pay for the substation,” Butler said during the hearing.

As communities across Tennessee consider proposals for new data centers, and new laws to regulate (or contain) them, some local leaders remain opposed to bringing the facilities to their areas.

“I don’t think they fit in Robertson County, and definitely not in my community,” said Cedar Hill Mayor John Edwards, who is proposing a two-year moratorium on data centers in his city.

Electric providers and utilities are also preparing for future demand. The Tennessee Valley Authority reports data centers currently account for about 18% of its industrial power load, a figure that’s predicted to potentially double by 2030.

The new law also allows utilities, including TVA, to establish a separate customer or rate class specifically for data centers, providing an additional safeguard against shifting costs to other customers.

As energy demand continues to surge, state lawmakers say the goal is to ensure Tennessee stays competitive, while families and businesses do not see higher electric bills because of data center expansion.

Data center advocates, meanwhile, say many facilities generate much of their own power on-site and use advanced cooling systems that require little or no water.

If TVA moves forward with creating a separate customer or rate class for data centers, FOX17 will continue to follow those developments.