Key Points:

• States face growing electricity demand due to data centers
• Lawmakers aim to balance affordability, growth, and decarbonization goals
• States are exploring various policies to regulate data center development next year

Affordability, meeting growing electricity demand and managing data center development will drive the energy agenda of most states next year.

A surge in electricity demand, primarily driven by the growing need for the power-hungry data centers needed to advance artificial intelligence, is forcing states to get creative to meet demand and address related repercussions, including rising prices.

States will face the challenge of balancing sometimes conflicting priorities: boosting power generation while fostering economic growth, keeping electric bills from skyrocketing, and, in some cases, meeting decarbonization goals.

“We need to find the most affordable, reliable way to meet this growing demand without shifting costs onto consumers. It’s really that simple,” said Marc Brown, vice president for state affairs with the Consumer Energy Alliance, a Houston-based group focused on energy reliability and affordability whose members include manufacturers, gas utilities and other fossil fuel companies. 

Affordability 

The focus on energy affordability has only increased since the issue took a prominent role in last month’s state elections in Georgia, New Jersey and Virginia. The vast majority of legislative seats are on the ballot in November 2026.

State lawmakers are poised to explore a range of policies next year — as they did this year — to try to keep power costs down, including limiting utilities’ profits, freezing utility rates, and increasing battery storage. 

They are also expected to explore legislation to ensure that utilities’ forecasts of energy demand are accurate. Bills were recently introduced in New Jersey and Pennsylvania to allow more scrutiny of the forecasting process.  

The concern is that utilities could use forecasts that artificially inflate demand by overcounting the number of anticipated data center projects. Since data center operators simultaneously bid to build projects in several locations to secure the lowest costs, customers could pay higher utility rates even if the projects never materialize.

States are also expected to continue to press the nation’s largest grid operator, PJM Interconnection, to help lower electricity rates. Prices in some PJM-served states have risen by about 20% since June. 

PJM oversees grid operations for 67 million people between Chicago and Washington, D.C. Its policies are set by its voting members, many of whom are utilities. States have sought more transparency from PJM utilities, and some have threatened to leave the grid operator.

Meeting demand

States have already taken actions to meet growing demand, with a flurry of activity this year. Illinois removed barriers to nuclear power and New Mexico removed barriers to geothermal energy. At least nine states introduced measures to provide economic incentives or expedite processes for building energy projects, including Arkansas, Maryland and Missouri, all of which were signed into law. 

Legislators in at least eight states introduced bills this year focused on keeping plants online longer than initially planned. Measures were passed in Arizona, Arkansas, and Indiana.

All these are expected to again be trends in 2026.

Lawmakers are also expected to try to meet the demand for power by delaying the retirement of existing power plants, including coal-fired facilities; incentivizing the construction of new power generation projects; and exploring all forms of energy sources to increase electricity generation, such as nuclear and geothermal.

But those are longer-term solutions, and states are looking for ways to have a more immediate effect. States are looking at grid enhancement technologies and virtual power plants, which allow homeowners and businesses to use smaller energy devices, such as solar panels, home batteries and smart appliances, to power homes and businesses during peak demand. 

States will also look to allow plug-in solar, which lets smaller solar panels be set up on an apartment balcony and plugged into residential electric outlets. Lawmakers in as many as 24 states could introduce plug-in solar legislation next year.

Data centers 

States will seek to regulate data center development next year, both to incentivize the industry  and to protect utility customers from higher electricity costs driven by increased demand.

Data centers are specialized buildings that house networking and computing equipment and can consume as much electricity as a city. An Energy Department report in July estimated that an additional 100 gigawatts of new peak capacity is needed by 2030, of which 50 GW is attributable to data centers.

The coming legislation is expected to include imposing specialized rates for data centers and other large-load power users. That is on top of allowing data centers to generate their own power, such as through the development of microgrids, which are localized energy networks that generate power close to where it’s used. 

West Virginia is an example of how states are working on the issue from two directions. Lawmakers in the state enacted one bill to create a one-stop-shop permitting program for data centers. They enacted another that allows data-center developers to create independent microgrids. 

Other states are also looking at so-called behind-the-meter power for data centers. Legislation was enacted in Texas and Ohio. 

That contrasts with Oregon, where lawmakers created a new customer category for data centers and other large-load users, allowing regulators to ensure that data centers and crypto miners are charged for their costs, rather than passing those costs on to households and small businesses. 

Data center advocates contend that they are wary of overregulation and are willing to work with state regulators to find solutions to help state economies grow.

“We’re committed to being an engaged stakeholder with legislators, regulators, utilities and others,” Dan Diorio, vice president of state policy for the Data Center Coalition, said in October at a Pennsylvania House committee hearing. “We stand ready to be a resource for the committee, for the legislature, and for others to help guide policy discussions that keep Pennsylvania a competitive marketplace for data center development.”