A data center compromise?

This legislative session ends in 10 days. Two bills have starkly different perspectives about what would be right for Colroado. Might they cancel each other out? Or is a compromise possible?

by Allen Best

Ten days remain in Colorado’s legislative session. Since January, two bills have been introduced regarding large-scale data centers. The two bills offer sharply differing views about what Colorado policy should be.

Neither bill has yet to emerge from their first committee hearing.

Will there be a compromise?

To be clear, conversations are underway. “We have conversations popping up hour by hour,” said Alana Miller, Colorado policy director for the Natural Resources Defense Council, when I spoke with her Friday afternoon.

But as of Friday, no pathway was evident for either bill.

The competing visions had become evident by last October. One side sees data centers as an opportunity for economic development that needs carrots. It proposes tax relief, as has occurred in many other states.

The other side sees need for strong guardrails to ensure large data centers do not soak up alarming amounts of water, impair Colorado’s ability to achieve its greenhouse gas reduction goals, or foist infrastructure costs on other utility ratepayers.

Interestingly, the prime sponsors of both bills are both Democrats. This is not strictly an R vs. D thing, nor rural vs. urban.

Colorado’s largest electricity generating utilities, Xcel Energy and Tri-State Generation and Transmission Association, certainly have expressed interest in delivering electricity to data centers. Less directly, so has Colorado Springs Utilities, which wants to extend the life of its Ray Nixon coal-burning plant until 2032 to meet growth in demand. Labor and other sectors have also shown support.

The environmental community speaks largely with one voice in insisting that Colorado needs to set guardrails on both energy and water use — and in opposing tax breaks for big technology companies.

HB-26-1030 was introduced in January. Rep. Alex Valdez, who represents downtown Denver, took the lead on this bill. It would exempt 100% of state sales and use taxes to developers who commit to making a minimum $250 million investment. This is good for 20 years with a possible extension. By the ‘27-’28 fiscal year, the exemption would reduce state revenue by an estimated $59 million with larger reductions in subsequent years, according to the fiscal note reported by the Legislative Council staff on Feb. 9.

The bill was assigned to the House Energy and Environment Committee, which Valdez chairs. Tellingly, it has yet to get a hearing in the committee, an obvious sign that Valdez knows he does not have the votes to get it approved.

Meanwhile, headwinds are mounting. On Saturday, Politico reported that bills have been introduced in 28 states that propose to pare existing incentives to data center developers. See: “Data centers used to be a prize. States are having second thoughts.”

SB26-102 was introduced in February. Sen. Cathy Kipp, from Larimer County, has been the key legislative figure in this bill. It does not say no to data centers but it raises a high bar.

It would apply to any new data center with a peak load of more than 30 megawatts or multiple new data centers with a collective peak load of more than 60 megawatts. For comparison, Holy Cross Energy has a peak demand of 281 megawatts during December when the snowmaking guns are blowing, the chairlifts are running, and the hotels are full. Boulder has a peak demand of 257 megawatts.

Kipp’s bill requires the large-load data center operators to deliver reports annually about their electricity and water consumption. The bill also stipulates that “operators of large-load data centers should help Colorado meet its clean energy and climate goals and be responsible for paying their fair share of the costs of new energy infrastructure and grid investments needed to meet the demand for large-load data centers.”

The bill, if were to become law, would require 100% renewable energy by 2030. The bill does acknowledge behind-the-meter generation, as is common in many parts of the country, often with gas-fired generators. The bill would limit their use to 50 hours per year.

The bill also insists upon careful use of water. “New large water users like large-load data centers may threaten Colorado’s water supply security and the state’s ability to provide reliable water resources for other critical water users…”

Not least, the bill has an environmental justice component. A data center in a poorer neighborhood of Denver with a larger Hispanic population has drawn great attention, and Kipp was in attendance at one neighborhood meeting focused on that in March.

The fiscal note for this bill finds a cost to Colorado’s state government of $1.3 million annually for administrative costs. The bill also calls for overview by both the Air Quality Control Commission and the Public Utilities Commission.

Kipp’s bill was heard by the Senate Transportation and Energy Committee on March 18, but after extensive testimony, Kipp requested that the bill be laid over in order to work on amendments. No vote was taken.

Publicly, at least, Gov. Jared Polis has not tried to define a favored path for Colorado or, for that matter, a compromise. Most assuredly, his team is at the table.

NRDC’s Miller said she hopes a bill will still get across the finish line this session.

“No state has really done this right from my perspective,” she said.

I am also reminded of what a former state legislator told me in October, when I was trying to sniff out what might be proposed in this session. The two bills, the legislator said, might end up cancelling each other out.

With 10 days left in the session, that is a distinct possibility.