After three months on ice, a significantly rewritten bill to offer incentives for data-center development — while ensuring environmental and ratepayer protections — will get its first legislative committee hearing Thursday, launching one of the biggest debates this session.
This week, the primary author of House Bill 1030, Democratic Rep. Alex Valdez of Denver, circulated a 50-page strike-below amendment rewriting the bill following intense discussion with leaders in the technology industry and the conservation movement. While the new iteration of the bill is unlikely to win over serious environmental detractors, it appears to have calmed worries among industry officials who had sought major amendments, and supporters are optimistic it can clear its first committee.
Arriving amid a national debate over whether the swiftly growing data-center sector needs more financial incentives or more guardrails, HB 1030 is one of two bills that take essentially competing approaches to the subject this year. Senate Bill 102, which seeks to require new data centers provide their own energy and require that all of that power be from renewable sources, got a Senate committee hearing on March 18 but is idling without having gotten a vote — a sign that it likely doesn’t have support to advance.
Though SB 102 sponsors are insistent that their proposal would not ban major data-center development, backers of HB 1030 have styled the difference between the proposals as that of attempting to welcome data centers versus attempting to put many regulations on them. While SB 102 bars utilities from reaching economic-development agreements to grant favorable rates and conditions for the data centers, for example, HB 1030 offers a 100% state sales-tax exemption on construction materials for the facilities for 30 years.
Colorado not now a data center player
Colorado state Rep. Alex Valdez speaks during an online news conference in January about his bill to incentivize data centers.
Colorado is home to about 50 data centers already, but all of them use between two and 50 megawatts of power to store, process and distribute the data that powers the cloud — facilities considered small to medium in size. And while Colorado is headquarters to 10 data-center developers, none of them are building facilities within the state, as incentives and regulations in other states have made those more attractive domains.
HB 1030 aims to attract the kinds of facilities that demand $250 million each in capital spending in order to install and protect the intricate computer equipment inside and then to update and replace it every several years going forward. It would do so within the frame of a newly created special-purpose authority that would have to approve data centers of that size that are seeking tax breaks and ensure they meet certain conditions.
While the proposal would eliminate state collection of its 2.9% sales and use tax on equipment purchases, the tradeoff is massive boosts in property-tax revenues for local governments, plus construction jobs that are moving to surrounding states now. Sandra Hagen Solin, founder of the DataGrid Consortium, estimates the proposal could generate 82,212 job-years of work through 2029, grow labor revenue by $3.8 billion in that time and boost overall tax revenues — sales, property and income — by $457 million.
The sales-tax exemption proposed in the bill when it was introduced on Jan. 14 remains in place. What has changed is the protections for laborers, ratepayers and the environment that would come with it.
Data centers would cover grid-buildout costs
DataGrid Consortium founder Sandra Hagen Solin speaks during a January online news conference on incentivizing data centers.
While utilities in other states have had to hike ratepayer costs to fund the increased grid infrastructure needed to supply the massive energy users, some Colorado public officials have blanched at concerns of what a wave of such centers could do to ratepayers here. As such, the bill rewrite includes a new mandatory tariff for facilities using more than 50 megawatts of power annually that requires those data centers to assume all costs of new energy generation, transmission and distribution themselves.
Environmental groups, meanwhile, have expressed concerns that a rush of data centers will increase emissions at a time when Colorado has been working to bring them down and will use a massive amount of water for cooling during a time of drought.
The rewritten bill would require data-center operators to put out water transparency reports detailing total consumptive use, water-source identification, descriptions of cooling technology and conservation measures. While it would not mandate closed-loop systems that recycle each drop of used water for reuse, it would include a performance-equivalent standard designed to minimize water usage.
Meanwhile, the bill continues to require that at least 75% of energy for the facilities come from renewable sources through 2039 and then 100% in 2040 and beyond. The bill makes explicit that no amount of data-center construction diminishes a utility’s requirement to meet pre-set emissions-reduction requirements, and it requires the buildings to have LEED Gold or Energy Star certification within 29 months of being operational.
Labor supporters get wage, supply provisions in bill
The bill, which is supported in concept by a variety of unions, continues to require that contractors and subcontractors pay prevailing wages and include apprenticeship requirements in their labor contracts. And the new version adds a domestic-steel requirement with a narrow supply-chain waiver.
Much like other environmentally focused bills of the past eight years, HB 1030 would give local governments land-use and zoning authority over the siting of data centers, as well as control over noise and other factors.
Finally, the bill requires developers pay fees based on tiers of megawatts use, with revenues going 70% to grid modernization and 30% to community benefits like workforce development. The Colorado Electric Transmission Authority has identified the need for $4.5 billion in grid upgrades to handle future electricity needs — needs being exacerbated by the transition away from oil and gas in the home-heating and transportation sectors — but says funding for only 56% has been identified.
Solin said all those provisions are the reality of developing data centers now, especially after some other states that offered early incentives saw significant draws on their power and water supplies and since have gotten citizen pushback.
Technology leaders pleased with changes in data-center proposal
And while technology-industry leaders chafed at some earlier requirements proposed in the bill, including inflexible water-system mandates and grid-improvement fees that could have given away how much energy they were using, some officials who have been seeking amendments to HB 1030 said they’ve now arrived at a good place with the requirements.
“We’re in this really unique place to position something that is really holistic in its approach,” Solin said. “We’re in this really unique place to do it right and do it at levels and standards that are groundbreaking in many respects … We could have the strictest requirements around it, but we won’t get the investment.”
But even as the bill is beginning to coalesce industry leaders around it, it likely still will face significant opposition from two groups that believe the state needs to focus more on guardrails than incentives when it comes to data centers.
Environmental organizations want the state to ensure that these centers don’t consume limited, precious water resources and take them from other parts of the economy that need them. And they want to ensure that the centers won’t go into industrial areas surrounded by lower-income residences and add to their pollution, much like they say other factories have done for decades in causing damage to adjacent neighborhoods.
Will data centers jack electricity rates?
Consumer-advocacy groups worry that giving millions of dollars to data centers will take money from state safety-net programs and from tax credits that would go to lower-income families if there is enough in the state budget. Many of those groups have pilloried major utilities who have sought rate increases from the Public Utilities Commission to build out the grid for significant increases in electricity consumption, saying the state should not allow them to pass to consumers the cost of accommodating data centers.
A good number of those skeptics of HB 1030 still want legislators to advance SB 102 — or to combine the two bills in a way that will add the protections of the Senate measure to the development enticements of the House bill. However, legislative observers say such a move is unlikely with the full rewrite of HB 1030.
“A strong data-center policy with clear consumer and environmental guardrails is essential for Colorado to ensure rapid load growth doesn’t lock in higher emissions for decades or leave ratepayers bearing the costs, said Alana Miller, Colorado policy director for climate and energy at the Natural Resources Defense Council, when SB 102 was introduced. “Colorado has a unique opportunity to shape data-center growth around clean-energy investment, fair cost allocation and protections for communities and workers, rather than allowing unchecked development to drive up bills and pollution.”
The House Energy and Environment Committee is scheduled to decide at a 1:30 p.m. hearing Thursday exactly how much HB 1030 meets those standards.
SB 102, meanwhile, has not been calendared yet for a vote in the Senate Transportation & Energy Committee after its initial hearing there last month.