Despite bill death, negotiations on potential data-center incentives continue

The sponsor of a bill to make Colorado competitive for data-center attraction by offering significant incentives reluctantly killed his proposal Thursday — but the possibility of offering incentives to bring in the capital-heavy facilities may not be dead yet.

Active negotiations continue between industry and environmental interests about adding smaller but still worthwhile incentives into Senate Bill 102, a proposal focused on putting regulatory guardrails around data-center development that’s sat dormant for two months. Those with knowledge of the talks cautioned that a deal is still a long shot, particularly as that bill must clear both its first committee and preliminary approval in the Senate in one day Monday for it to have a chance to pass, but they’re not giving up on the possibility.

The alternative to reaching a deal, interested parties explained, is ending the 2026 session on Wednesday without any progress on data centers from either an economic or environmental perspective — a prospect that pleases no one. Supporters of data-center attraction say that without some carrot to begin bringing them to Colorado this year, the state may be too late to the incentives game to land a big investment, while skeptics of the facilities warn that without regulations in place, a water-guzzling and pollution-emitting center requiring local grid upgrades go up with little public protection.

“It does give me a little bit of heartburn to say that there might be no policy in place,” said Courtney Fieldman, director of utility programs at the Southwest Energy Efficiency Project, in an interview Tuesday before House Bill 1030 officially was killed. “I would sleep better if we have some protections in place.”

Competing bills sought to shape data-center policy

For the past four months, supporters of the incentive-focused HB 1030 and the guardrail-focused SB 102 have stared each other down, creating a chasm between the two policies that, as it turns out, was too wide to bridge. Whether negotiations can prove more fruitful with just one bill on the docket to build around is another question.

HB 1030, sponsored by Rep. Alex Valdez, D-Denver, was the economic-development effort of the two — an attempt to reverse the current situation in which 10 data-center developers are headquartered in this state but none of them are working on major projects here. While Colorado has about 50 data centers storing, processing and distributing the data that powers the cloud, all are smaller facilities with limited impact rather than the nine-figure investments that will provide construction jobs for years.

Valdez proposed having Colorado join the 30 states that offer data-center incentives by giving 100% sales- and use-tax exemptions for as long as 30 years to centers that would invest at least $250 million. The bill earned labor support by proposing to require payment of prevailing wages and mandating that contractors have apprenticeship programs.

SB 102, sponsored by Sen. Cathy Kipp, D-Fort Collins, took a different tact, proposing a ban on utility economic agreements to incentivize data centers and requiring that the centers use 100% renewable energy that they source themselves rather than taxing the local grid. The bill, which outlines a timeline for requiring the demanding practice of hourly matching of renewables, got its first hearing on March 18 in the Senate Transportation & Energy Committee but has stalled there without a vote for lack of support.

Attempts at compromise on data-center issue

Valdez circulated a 58-page rewrite of HB 1030 two weeks ago that added both environmental and ratepayer protections. It would have required data centers use 75% renewable power through 2039 (and 100% thereafter), given local communities siting authority for the facilities and imposed fees to support grid modernization and community benefits near the centers.

While the DataGrid Consortium that’s pushed for recruitment of the facilities initially was optimistic about its prospects, it soon became clear that the proposal could not overcome hardened environmental opposition. Fieldman said that the decades-long incentives were too big a barrier for many groups to accept and that the fees to support the community couldn’t suppress fears that the bill would lead to large boosts in utility rates.

Valdez criticized that opposition in an emotional speech Thursday before the term-limited representative asked the House Energy and Environment Committee, which he’s chaired since 2021, to kill his bill. He defended his record of supporting decarbonization, accused opponents of spreading misinformation and said that data centers are coming whether or not people want, requiring legislators to think about how the state and the industry can benefit each other symbiotically.

“We can’t stop technology. We can’t stop where we’re going as a society … And we are in a state that is increasingly poor,” Valdez said. “We have no money to spend on things that our peers in this country are spending it on. And that is starting to show … I saw this as a pathway to create a connection, quite frankly, between (data center developers’) money and our need, which is what good lawmakers do.”

Hard lines against data-center development

But several other committee members showed in their responses why Valdez couldn’t get even his rewritten bill to move. Rep. Elizabeth Velasco, D-Glenwood Springs, said, for example, that the 20- to 30-year incentives were too much of an ask for her and that her primary concerns lie with environmental protections.

Rep. Junie Joseph, D-Boulder, went further and said that she would like to see Colorado implement a moratorium on data-center development — an idea that’s a non-starter for Gov. Jared Polis — until officials better understand the facilities’ impacts. She criticized the temporary jobs created by data centers, despite the support for them offered by unions, and said leaders need clear proof that the centers can provide long-term value.

“Let us be honest about labor … We cannot build Colorado’s economic future around limited opportunities for working people,” Joseph said. “That is not sustainable economic development. That is transfer of private risk into public hands.”

Energy opportunities with data centers

The debate about data centers’ benefits has grown into areas beyond construction spending on pricey materials and boosts of property taxes for the cities and counties in which they located. Sen. Larry Liston, a Colorado Springs Republican who’s worked with Valdez to promote the development of nuclear energy in this state, said other states are working to codevelop data centers with small nuclear reactors as job-generating sources of clean energy.

Technology and environmental advocates must quickly thread a delicate needle if they are to move SB 102 forward with enough incentives to get industry behind the bill and enough protections against water overuse and emissions increases to earn green votes. Utilities, who would be asked to supply reliable power to the data centers while still meeting goals to reduce greenhouse-gas emissions 80% by 2030, also must be a part of the conversation.

Fieldman said that any significant, broad incentives could be a problem for environmental advocates. But many groups would listen to ideas about, say, offering tiered incentives based on renewable-energy usage or allowing for faster permitting and connection to the grid rather than big-money giveaways for the centers.

What comes next

If no bill passes, Fieldman suggested that environmental advocates will turn their attention to upcoming Public Utilities Commission rulemaking around large-load tariff rates and look to achieve protections there. Meanwhile, local governments ranging from conservative Weld County to progressive Denver are beginning to write their own rules on data centers, creating disparate regulations across Colorado.

Valdez, who had spent the past two years working on his efforts, left committee members with a warning that inaction will lead to lost economic opportunities for Colorado both in the short and the long run without any boosts to the environment. And data centers still will grow in neighboring states — and take members of Colorado’s workforce with them.

“My fear is that we will look back in two years and say, ‘We had an opportunity for generational change,’” he said. “But unfortunately, we have to continue with the status quo. And that’s not good for us, because Wyoming wins and Texas wins … I really want to see us address our energy issues.”

The hearing for SB 102 is scheduled Monday in the Senate Transportation & Energy Committee upon morning or afternoon adjournment of Senate floor work.