Earlier this week, the Virginia Senate proposed SB 253 – “The Fair and Affordable Electric Rates Reliability Act”. This Bill joins other states that are looking for solutions to ever increasing electric bills and who are targeting data centers as the perceived party that is causing the rate increases.
It is a bit too early to tell if the SB 253 makes its way through the legislature, but it is indicative of approaches being considered and acted upon by various states. SB 253 which is supported by Dominion Energy (a large power generator in Virginia and beyond), would shift the way certain large consumers pay for electricity. Dominion Energy is a power supplier and creates its own energy at the power plants it owns and controls but then goes to the open market to buy electricity from the grid at auction for any excess capacity it needs and then allocates these excess costs to its customers who use the electricity.
Under the Bill proposed by Senator Louise Lucas, average residential electricity bills would decline 3.25% on average and between 2.9% and 3.7% on average for commercial customers. This reduction would be paid for by increasing the rates paid by data centers and other large consumers of electricity by approximately 15% according to the Senator’s white paper on the Bill.
In short, the Bill would require that data centers and other big users of electricity cover the cost incurred to construct power stations, substations and high voltage lines to serve the data centers (even if these costs are for off-site improvements). These rate charges would become effective January 1, 2027, and would apply to any customers with demand requirements of 25 megawatts (MW) or more or with annual electric load factors of 75% or more. As data center users tend to be in the over 25 MW to 1,000 MW (or 1 gigawatt) user category, the bill is targeting these entities to pay for the required infrastructure needs they are creating via their demand profile.
Interestingly, “any customer of a Phase II Utility” is defined under SB 253 as an entity that has 200 or more full time employees as of January 1, 2026,that has the demand attributes mentioned above. It will be curious to see what entities in the manufacturing and industrial arenas actually have over 200 employees required to trigger the applicability of SB 253.
The Quantitative/Qualitative Corner: This type of specific targeting of large industrial users of electricity is not a new thing, rather, it has been building over the last two plus years as various states have seen electricity rates rise over 21% since 2023 depending upon what market they are in. These states are looking for ways to appropriately and fairly allocate costs while not killing the golden goose that is data center development given the ratables the sites will create and the construction jobs that tend to be a part of this every growing sector. We will continue to keep an eye on SB 253 and other state proposals that are targeting data centers and will attempt to keep you, our readers, up to speed.
Duane Morris has an active team of lawyers who have been engaged in the review and dissemination of data center, digital infrastructure, real estate and incentives related alerts, blogs and advice on various topics. Please see our website for a few list of all available articles and blogs.
If you have any questions or thoughts, please contact Brad A. Molotsky, Robert Montejo, Darrick Mix, Veronica Law, Ben Warden, Paul Josephson or any of the Duane Morris lawyers you regularly engage with.