Who will pay for data centers’ growing electricity demands in NJ?

New state regulations could determine who shoulders the costs of grid upgrades, how developers guarantee payments, and what happens when projects fail. A New Jersey Board of Public Utilities stakeholder meeting is set for Nov. 4.

As New Jersey residents grapple with rising electricity bills, state regulators are preparing rules that could determine whether households and small businesses end up paying part of the cost of powering massive data centers.

The New Jersey Board of Public Utilities will hold a virtual stakeholder meeting Wednesday, Nov. 4, from 10 a.m. to noon to discuss how the state’s new Data Center Fair Share Act should be implemented. The public can also submit written comments through Nov. 13, according to a notice issued by the board.

The board will establish rules for how the costs of power lines, substations, and other electrical infrastructure needed to serve data centers are calculated and paid for, with the goal of preventing those expenses from being passed along to other electricity customers. Data centers house the computer systems supporting artificial intelligence, cloud computing, and other digital services.

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All four of New Jersey’s electric distribution companies will be subject to the new rules: Public Service Electric & Gas, Jersey Central Power & Light, Atlantic City Electric, and Rockland Electric Co. Each utility will be required to develop special electricity rates and requirements for large data center customers based on statewide standards established by the board.

Large data centers can consume enormous amounts of electricity, placing additional demands on the regional power grid. The New Jersey Board of Public Utilities has identified the risk that the costs of expanding electrical infrastructure to serve these facilities could be passed along to other customers, particularly if data centers close, abandon projects, or use less electricity than originally planned.

The Data Center Fair Share Act, signed by Gov. Mikie Sherrill on July 7, is designed to prevent utilities from passing those costs along to other customers. The law gives the New Jersey Board of Public Utilities 12 months to establish standards, including the specific rules utilities must follow to protect customers from additional costs.

What the state is deciding

Under the Data Center Fair Share Act, the New Jersey Board of Public Utilities must establish standards for separate electricity rates for large data centers, with safeguards to prevent costs attributable to those facilities from being passed along to other customers.

According to the board’s request for information, the law requires data center operators to cover costs attributable to their electricity use, including infrastructure investments, system upgrades, and potential stranded costs. Stranded costs are expenses for infrastructure and other investments that utilities may be unable to recover if a data center closes, abandons a project, or uses less electricity than anticipated.

Under the law, data center customers must provide financial guarantees covering at least 85% of the electricity supply they request for 10 years, subject to standards developed by the Board of Public Utilities. The requirement is intended to protect other customers from paying for infrastructure built to serve projects that never reach their expected size.

Regulators must also decide how to define a large data center, how to calculate financial guarantees, and what happens if developers abandon projects or fail to meet their electricity commitments.

During electric grid emergencies, large data centers would be required to reduce their electricity use before residential customers face power reductions. The law allows exceptions for essential operations, but the New Jersey Board of Public Utilities must decide which operations qualify and how the requirements will be enforced.

Another question is how to prevent developers from dividing projects into smaller facilities or using complex corporate structures to avoid the regulations. The board specifically raises those issues in its request for information.

How other states are handling data center costs

New Jersey is among dozens of states developing special electricity rates and financial protections for large data centers.

A national database compiled by Metro Colo Advisory, a commercial data center consulting firm, has tracked 105 utility and regulatory filings involving special electricity rates for data centers and other large power users across 45 states.

The database, updated Oct. 29, includes approved requirements, pending proposals, special agreements, and ongoing regulatory proceedings. Although states are taking different approaches, many are considering or adopting financial guarantees, long-term contracts, and minimum payment requirements to protect other electricity customers from data center-related costs.

In Ohio, regulators approved a requirement for large data center customers served by AEP Ohio to pay for at least 85% of their contracted electricity capacity, even when they use less. The requirement is part of a special data center rate approved by the Public Utilities Commission of Ohio in July 2025.

Virginia regulators have approved a separate rate class for large electricity customers served by Dominion Energy, including data centers. Beginning in January 2027, qualifying new customers must make a minimum 14-year service commitment. Certain large customers must also pay minimum charges based on 85% of their contracted transmission and distribution demand and 60% of generation demand.

In Michigan, the Michigan Public Service Commission approved a minimum 15-year contract for large customers served by Consumers Energy, along with minimum payments based on 80% of billing demand and penalties for ending contracts early.

Those requirements address the same concern facing New Jersey: Utilities may invest heavily in infrastructure for data centers that use less electricity than anticipated, abandon planned projects, or close before the investments have been paid off.

Comparisons with other states also raise questions about whether New Jersey’s proposed protections will be sufficient. Is a 10-year financial guarantee long enough to protect other customers from infrastructure costs that may be recovered over decades? Should developers pay directly for more of the grid upgrades needed to serve them? And could regional transmission costs still be passed along to households even when data centers cover the costs of their direct connections?

Could data centers help pay for energy improvements?

The law also establishes a voluntary program that could allow data centers to finance electricity-saving improvements for other customers.

Under the demand-reduction trade program outlined in the New Jersey Board of Public Utilities’ notice, data center operators could pay for measures such as energy efficiency improvements, battery storage, or programs that reduce electricity use during periods of high demand. In exchange, the operators would receive credit for verified demand reductions.

For example, a data center could potentially help finance energy-saving improvements at homes or businesses, reducing the amount of power the electric grid must supply during peak periods. The board is asking stakeholders which technologies and programs should qualify, how electricity savings should be verified, and how to ensure the benefits are not overstated.

Businesses are already weighing in

Companies interested in developing data centers and providing energy services have begun weighing in on how the law should work.

In written comments, a developer planning a large New Jersey data center that would connect to high-voltage transmission lines supports requiring data centers to pay for the costs they impose on the grid. But the developer argues that financial guarantees should be phased in as projects expand.

The developer proposes allowing three to five years for facilities to reach their expected electricity demand, with the 85% payment guarantee calculated against each year’s projected demand rather than the full amount requested for the completed project. The developer also recommends adjusting financial obligations when utility delays prevent a project from receiving electricity on schedule and allowing developers to transfer their place in the utility connection queue to future tenants.

Those recommendations illustrate one of the central decisions facing the New Jersey Board of Public Utilities: How much flexibility should developers receive while ensuring other customers are protected from unexpected costs?

Other businesses see potential opportunities in the demand-reduction program.

In an Aug. 17 letter to the board, Dan Rodriguez of Power Energy Solutions, a solar and roofing contractor based in Blackwood, urged regulators to include residential solar panels paired with battery storage among the measures eligible for financial support from data centers.

Rodriguez argued that solar and battery installations at homes could reduce the amount of electricity those households draw from the grid, benefiting both utility customers and the state’s electricity system. His company wants to participate in the regulatory process and potentially become an approved contractor once the program is established.

Will data centers raise or lower electric bills?

The question of whether data centers will ultimately increase or decrease household electricity bills remains unsettled.

Metro Colo Advisory’s database includes utility projections claiming that large data centers could benefit other customers by spreading the fixed costs of operating the electricity system across a larger customer base. Other proceedings address the risk that building infrastructure for these facilities will increase costs for existing customers. Those projections are not proof of actual savings or increases. The financial effects depend on how much infrastructure must be built, how long data centers remain in operation, how much electricity they use, and how regulators distribute the costs among customers.

New Jersey’s proceeding raises questions that extend beyond the financial guarantees developers must provide. How much additional electricity demand are utilities expecting from proposed data centers? What infrastructure will be necessary to serve them? How will regulators account for costs shared across the regional grid? And will the public be able to determine whether data centers are paying their full share?

How residents can participate

The Nov. 4 stakeholder meeting is open to the public.

The New Jersey Board of Public Utilities describes the meeting as a “structured public comment session.” Participants who want to speak have up to three minutes during the meeting. The board is asking people to register at least 48 hours in advance. Residents can also submit written comments without attending the meeting. The deadline is 5 p.m. Friday, Nov. 13.

How to participate:

• Stakeholder meeting: Wednesday, Nov. 4, 10 a.m. to noon, via Zoom. Register for the meeting.
• Written comments: Due Nov. 13 at 5 p.m. Visit the New Jersey Board of Public Utilities’ docket page for case EO26080463 and select “Post Comments.”
• More information: Read the official public notice and request for information.

The New Jersey Board of Public Utilities has until July 2027 to establish its standards. Electric utilities will then have 180 days to submit proposed rates for large data centers.