Data center regulation is moving from a state and local issue toward a broader federal policy question. Recent federal proposals aim to create clearer rules for how large-load facilities connect to the interstate transmission grid and how utilities recover the costs of serving them. At the same time, states are tightening oversight. Together, these developments show a shift away from open-ended data center expansion and toward conditional approval based on grid reliability, infrastructure cost responsibility, water use and community impact.

Policymakers and utilities are increasingly focused on ensuring that large-load customers fund the incremental generation, transmission and distribution upgrades needed to serve them. Recent federal legislation seeks to formalize this principle, while preserving state and local control over siting, retail rates, construction and land use. At the state level, the ERCOT (Electric Reliability Council of Texas) Batch Zero process reflects a move toward coordinated, systemwide planning for large-load interconnections, while New York and Michigan are using moratoriums to pause development until more stringent rules are in place. An executive order in Utah broadens the debate beyond electricity by making water, air quality, local impacts and environmental constraints central to project review. Microsoft Corp.'s Nevada tariff proposal shows that developers may also benefit from clearer cost-allocation rules — predictability can support faster planning and reduce future disputes. Data centers are still welcome where they align with infrastructure goals, but developers will need to prove that projects are financially, operationally and environmentally sustainable before receiving approval.

National

The trend to set up standards for how data centers are classified and connected to the grid within individual states has moved to the federal level. The POWER Up Act (S. 4806), introduced by Senator Cynthia Lummis (R-Wyo.), is an early federal effort to create systematic rules for how data centers and other large-load users connect to the interstate transmission grid. The bill would amend the Federal Power Act to clarify that the Federal Energy Regulatory Commission (FERC) has jurisdiction over the interconnection of large-load facilities directly to interstate transmission facilities. It defines a large-load facility as a facility with a projected aggregate peak demand of 100 megawatts or more. The bill would treat these interconnections as part of open access transmission service and require FERC to issue a final rule within 18 months establishing standardized procedures and agreements. At the same time, the bill preserves state and local authority over siting, permitting, construction, retail electric service and rates, local distribution, and electricity generation — limiting the federal role to transmission-level interconnections for large power users.

A second bill called the Ratepayer Protection Act (H.R. 9340) has also been proposed in the US House of Representatives by Rep. Gabe Evans (R-Colo.) and Rep. Kathy Castor (D-Fla.). It would amend the Public Utility Regulatory Policies Act of 1978 to require a federal standard for how utilities recover costs related to serving large-load customers. Under the bill, electric utilities would have to design rates so that large-load customers, defined as nonresidential electricity users seeking service for one or more facilities with at least 100 MW of peak demand at a single site or campus, pay the full, incremental costs of generation, transmission or distribution upgrades needed to serve their load. The requirement would also apply even if the customer later terminates its contract, stops purchasing electricity or otherwise exits. It would also require utilities to obtain financial assurances or contributions from the large-load customer before making the necessary upgrades/

Texas

ERCOT has approved a new transitional large-load framework. PGRR145 establishes a transitional Batch Zero process for ERCOT to manage large-load interconnection requests in a more coordinated way. The key change is a move away from individual studies led by transmission service providers toward an ERCOT-led, systemwide batch study process. Batch Zero is designed as a bridge to a future permanent batch study framework. Large-load requests will be sorted based on study maturity and commitment criteria into base load, studied load or load deferred to a future batch.

The process has two main study phases. First, ERCOT will conduct a Batch Zero interconnection study using systemwide steady state analysis and stability screening. Second, ERCOT will conduct a Batch Zero refinement study to identify needed transmission improvements, explain the need for those improvements, estimate costs and consider alternatives. After study results are provided, interconnecting large-load entities will have 30 days to execute interconnection agreements after receiving megawatt allocations for the first six years. ERCOT must submit the final Batch Zero report for regional planning group project review by June 1, 2027, and that report will serve as ERCOT's independent review unless ERCOT updates it after stakeholder comments.

New York

Following Maine, New York lawmakers voted to approve a one-year statewide moratorium on certain large data centers, positioning New York as a potential first mover in the US. The Responsible Data Center Development Act (S10642), proposed by State Senator Kristen Gonzalez, now sits on the desk of Governor Kathy Hochul. If signed, the moratorium would apply to data centers with a peak demand of 20 MW or more. After the moratorium, operators would be required to invest in surrounding communities and create a separate electric and water rate class specifically for them, while facilities with 5 MW or more would have to meet renewable energy use standards and goals created in the interim. The bill would also impose labor standards and require that iron and steel used in covered projects be produced, or made in whole or substantially, in the US. Hochul has previously suggested, however, that data center land-use regulation may be better handled locally rather than statewide.

Michigan

Michigan legislators have once again introduced legislation to pause data center expansion in the state after the first attempt stalled out after introduction. Three bills were introduced by State Senators Jim Runestad and Ruth Johnson that affect zoning and approval processes across the state. Together, S.B. 1018 and S.B. 1020 would create a temporary statewide pause on key approvals needed for new data centers until April 1, 2027. S.B. 1018 would block local and environmental authorizations and prohibit new data center operations, while S.B. 1020 would prevent the public service commission from approving electric utility contracts, tariffs, discounts or rates for qualified data centers during the same period.

S.B. 1019 is broader than just data centers — it also addresses zoning limits related to oil and gas wells, mining, and renewable energy approvals — but it connects directly to the data center package by making zoning ordinances subject to the proposed Data Center Regulation Act. Senate Bills 1018 and 1019 are mutually dependent, as each says it will not take effect unless the other is enacted. S.B. 1020, as provided, does not contain the same express contingency language, but it appears designed to work alongside the moratorium by preventing utility approval actions for data centers until the same April 1, 2027 date.

Utah

Utah Governor Spencer Cox has issued an executive order establishing a "higher bar" for data center development in the state in the wake of the proposed Stratos Project. The order responds to growing public concern that major data center and AI infrastructure projects could place pressure on water supplies, air quality, utility rates, local communities and quality of life. It establishes a statewide data center framework requiring agencies to consider impacts such as noise, heat, lighting, traffic, air quality, water quality, wildlife and energy infrastructure before supporting or advancing large-scale developments.

The policy is especially focused on protecting scarce water resources and the Great Salt Lake, making water consumption and water quality central tests for future projects. It also seeks to prevent data center developers from shifting the cost of new energy generation or transmission infrastructure to existing households and businesses. At the same time, the order does not reject data center development outright. Instead, it attempts to channel growth toward outcomes the administration views as beneficial, including rural job creation, economic development, expanded energy capacity consistent with environmental goals and AI infrastructure aligned with Cox's Pro Human AI Initiative.

Nevada

Microsoft has proposed a Ratepayer Protection Tariff for large-load interconnections to the Nevada Public Utilities Commission. The proposal includes two tariff structures: a CIAC (contribution in aid of construction) model, under which customers contribute construction funding up front, and a facilities payment model, under which customers pay overtime for customer-caused infrastructure. The tariff would be optional, with eligibility tied to large usage, demand and load-factor thresholds, and customers would need to submit a connection application, pay a nonrefundable fee and execute an electric service agreement before taking service. Core mechanics include distinguishing between customer-contributed share and system-benefit share and using asset schedules, true-ups, workpapers and an asset recovery rider to document and reconcile cost responsibility. The filing also establishes transmission and generation study procedures, including scenario analysis, system impact studies, facilities studies and resource planning that accounts for customer-procured power purchase agreements or bring-your-own-power resources.

The Ratepayer Protection Tariff could benefit Microsoft by creating a clearer and more predictable path to expand data center capacity in Nevada. Financially, the RPT improves cost visibility. Microsoft would have a more transparent understanding of its infrastructure obligations before committing capital, reducing the risk of later disputes in rate cases or unexpected cost shifts. Operationally, the proposal could support faster and more coordinated power procurement. If Microsoft can align its own power supply strategy with utility planning, it may reduce duplication, improve reliability and preserve greater control over its energy portfolio.

The author(s) used a proprietary S&P Global AI platform in the production of this report. It was subsequently peer-reviewed, fact-checked and edited before publication.