New Tennessee law requires data centers to pay for their own electricity infrastructure

NASHVILLE, Tenn. (WKRN) — A new law signed by Gov. Bill Lee signed new legislation aims to protect utility ratepayers’ pockets when new data centers come to town.

The law, sponsored by Sen. Brent Taylor (R-Memphis) and Rep. Ed Butler (R-Rickman), requires data centers that have a peak demand of at least 50 megawatts of electricity during the first three years of operation to pay for their own electricity infrastructure so the ratepayers aren’t stuck with the bill.

“Under no circumstances should ratepayers have to pay for the infrastructure improvements needed by these data centers and their insatiable appetite for energy,” Taylor said.

According to the Tennessee Valley Authority, data centers make up about 18% of their overall power load.The legislation is modeled, in part, after what Taylor called “the xAI way,” pointing out when xAI brought Colossus — the world’s largest AI supercomputer — to Memphis, the company secured its own dedicated energy source to power the facility, which is estimated to use enough electricity to power 200,000 to 300,000 homes.

“They bought a decommissioned plant in nearby Mississippi, and they are generating their own electricity, and they are transmitting that to the data center,” Taylor said.

Taylor told News 2 the goal of the legislation is to protect the ratepayers.

“This is just common sense. There is an explosion of data centers around the country. They require an enormous amount of energy, and all we’re saying in Tennessee is that if you’re going to put a data center in Tennessee and that requires a lot of energy, then the data center needs to provide their own energy and they need to pay for that cost,” he continued. “It actually accomplishes exactly what President Trump has said he wants to do, and that is to protect rate payers when it comes to these large data centers.” 

The bill passed with bipartisan support in the Senate.

However, in the House, Democrats’ votes were split. Some who voted against the bill worried about an amendment to the original proposal that, in limited circumstances, will allow utilities to allocate portions of the infrastructure costs across the broader system, rather than charging only the data center, if the upgrades also benefit other customers or improve or replace existing infrastructure.

“As long as your power company says, ‘Well, by doing this for this data center, it’s actually going to benefit residents,’ they can then increase the rates of our constituents; of our community members,” Rep. Justin Pearson (D-Memphis) said.

However, Taylor told News 2 the legislation prioritizes ratepayers’ wallets.

“The only time that a data center would ever be able to benefit from ratepayer money would be if the entire system benefits, industrial customers and residential customers and commercial customers as well,” Sen. Taylor. “But for the data centers that require infrastructure improvements, they have to pay for that, and those costs will not be shared with ratepayers. It’s all designed to help keep people’s energy prices down, and that’s why I worked so hard to do this.” 

The legislation immediately went into effect with the governor’s signature.