BY NICK EVANS
Research and advocacy nonprofit Innovation Ohio is urging state lawmakers to take a harder line with data centers.
A new report calls for an end to tax breaks and new protections ensuring infrastructure costs aren’t shifted to residential customers. But the fundamental problem, the progressive policy group contends, is a mismatch between energy supply and demand.
To ease that strain, Innovation Ohio urges lawmakers to make data center developers build their own power instead of relying on the public grid.
“Some of the richest companies in the world are using Ohio’s electric grid like an unlimited power outlet while taxpayers pick up the tab,” Innovation Ohio President Michael McGovern said.
“We are literally paying companies to plug massive electricity demands into our grid, then asking families to cover the cost. That’s a bad deal for Ohio taxpayers.”
The tax exemption
The most straightforward critique in the Innovation Ohio report — and among state lawmakers — is Ohio’s data center sales tax exemption.
That incentive is nearly 15 years old now.
When it was initially passed, data centers were part of the still-nascent shift to cloud computing; now they’re a critical component in the use and training of large language models.
Innovation Ohio tracks the exemption in state tax reports. For the first five fiscal years it was on the books, the exemption was estimated to cost less than a million dollars a year.
So instead of a dollar amount, small state tax officials listed it as “minimal” alongside exemptions like the sale of animals by non-profit shelters or computer equipment bought for teachers.
In fiscal year 2018, those estimates shot up to $27 million, and by fiscal year 2020 they started hovering around $70 million.
The most recent report pegs the annual cost at nearly $150 million.
“By making data centers cheaper to build,” the report states, “Ohio is encouraging more facilities to connect to an already-strained grid.”
And lawmakers aren’t unaware of the sharp increase in the data center sales tax exemption.
As part of the most recent budget, they voted to eliminate the incentive, but Gov. Mike DeWine vetoed it.
Ohio House and Ohio Senate leaders have teased an attempt at overriding that veto, and there are other standalone bills that would nix the tax break.
Cross-subsidies
Connecting any major industrial plant to the power grid can be costly and complex.
The utilities handling that work operate as regulated monopolies, so, their expenses eventually show up on your monthly utility bill.
“In short,” the report states, “rapid data center expansion is resulting in higher electricity costs for Ohio households and businesses.”
Innovation Ohio points to laws in Georgia which prevent cost-shifting by requiring in statute that data centers pay for their infrastructure costs.
Read more: AEP Ohio says new data center tariff is working, critics aren’t buying it
The report also praises AEP’s new data center tariff. Those billing standards require data centers pay for at least 85% of the power they reserve, whether they use it or not.
That helps ensure the utility isn’t planning — and billing — for demand that never materializes.
Innovation Ohio compares the grid to a highway.
The 85% rule is like requiring data centers to build the extra lanes they need, but the state’s tax breaks are filling up those new lanes as fast as their built.
“More cars on the highway mean traffic for everyone,” the report states, “regardless of who paid for the extra lanes.”
Demand shock
And that drives at the report’s central argument: Data centers are creating too much demand.
The regional grid operator PJM Interconnection runs a capacity market, which effectively puts a price on reliability.
The market ensures that when demand is at its peak, power is available.
In a recent auction, capacity prices saw a nearly tenfold increase in a single year. They’ve risen since and would’ve gone up more if not for a price cap imposed following a lawsuit filed by Pennsylvania.
Innovation Ohio cites a study attributing more than 60% of that increase to data center demand.
“This isn’t just one factor among many,” Innovation Ohio insists. “It’s the dominant driver.”
The answer, the group claims, is behind-the-meter power generation. That allows facilities to build power plants on-site rather than simply connecting to the grid.
State lawmakers made allowances for it in Ohio House Bill 15, a major utilities overhaul last year.
But if H.B 15 opened the door, Innovation Ohio thinks lawmakers should be pushing developers over the threshold.
The group points to Connecticut which is mulling an on-site power requirement.
“This approach puts the burden on data centers to solve their own power problem rather than passing it to the public grid,” the report states.
Ohio legislation
The report also reviews a handful of proposals currently working their way through the Ohio statehouse.
Innovation Ohio praises Ohio House Bill 706 which would extend AEP’s data center tariff to other utilities around the state.
The report also praises the transparency efforts driving Ohio House Bill 695.
That measure prohibits many local officials from signing nondisclosure agreements—a tool some developers have used to avoid public scrutiny.
However, Innovation Ohio notes the measure’s scope is limited.
For instance, it has nothing to say about developers claiming basic information like water or power use is proprietary information and not subject to public disclosure.
The report also expresses skepticism about Ohio House Bill 646, a measure establishing a data center study commission.
Innovation Ohio contends that devoting six months to studying a problem that’s already here suggests the effort “may be more about buying time than producing meaningful solutions.”
