Who should pay for South Carolina’s data center growth?

When a data center uses generation capacity from a power plant funded by and built for ratepayers, the utility may then need to build another power plant to replace that lost capacity for ratepayers. The utility will apply for a rate increase to fund new power plant construction, which means the capacity used by the data center could ultimately result in the ratepayer-financed construction of a new power plant. 

South Carolina code allows utilities to recover costs from customers when those costs are just and reasonable, including fuel and purchased-power costs. More specifically, the law directs the PSC to consider whether one class of customers is unduly burdening another and whether each customer class pays, as closely as practicable, the cost of providing service to that class. 

In a scenario where a data center’s energy demand, combined with other sources of load growth, creates the need for a new power plant, the cost of that new generation should be allocated proportionally. The data center should bear the construction costs associated with the share of the plant’s capacity attributable to its energy demand.  

Residential ratepayers should not be expected to finance new generation capacity when a data center’s increased energy demand consumes existing capacity that was previously financed by ratepayers. 

The Central Electric Power Cooperative has entered into an agreement intended to ensure that residential ratepayers will not bear the cost of new generation and transmission needed to serve data centers. While this is a good start, we believe this protection should be codified to ensure utilities cannot later reverse those commitments. 

Data centers must pay for replacement capacity 

Data centers need to pay their own way – this is the free market position. This does not mean every data center should be required to build an entire power plant. Rather, if serving a data center creates a need for an additional power plant, the data center should be responsible for their proportional share of the cost of new generation capacity.   

It’s understandable that it may take a long time to construct new energy generation facilities. It’s quicker and more affordable to build out beefed-up transmission lines and substations that connect data centers to pre-existing ratepayer financed facilities. However, that will likely result in diminished capacity for a growing residential population.  

In that case, if data centers are to use the capacity of plants ratepayers already paid for, they should pay for the new capacity their demand makes necessary. 

There’s a fear that when utilities service data centers, they are putting pressure on the generation capacity of power plants that were paid for by other energy customers. South Carolina’s energy infrastructure forecasts were not initially designed to account for these transformative customers. 

Bills filed last session aimed at addressing this issue divide data centers into three categories: less than 10 megawatts, less than 50 megawatts and 51 megawatts or higher. The department of Commerce does not track how many data centers are in S.C. Additional utilities and data centers themselves are reluctant to release consumption figures.  

For reference, using a study from the Nuclear Regulatory Commission we can estimate that 50 mw of conventional generation would power approximately somewhere between 20,000 and 45,000 homes. 

 While S.C.’s energy forecasts accounted for the state’s rapid population and business growth in recent year, they did not anticipate the emergence of data centers. 

As a result, new power plants must be constructed to serve a growing residential population, and the utilities may then apply for rate increases to pay for that construction. 

The S.C. General Assembly should ensure that data centers enter into energy contracts that assign responsibility for infrastructure and generation costs. If servicing a data center results in the need for a new power plant for other customers, the data center should be required to pay for its construction. 

If the capacity demand of a data center is not enough for an entire power plant, the General Assembly still needs to ensure by law that whatever capacity drain a data center has on the grid, the cost of supplementing that capacity through new generation and transmission does not fall on residential ratepayers. 

Ratepayers should never be in a position where they are handing over the generation they financed to data centers, just for utilities to ask the Public Service Commission for a rate hike to construct new capacity.  

The path forward 

The South Carolina General Assembly showed interest addressing this issue in the past session but ultimately abandoned three critical pieces of legislation in 2026 that would have put guardrails on data center development.  

The most critical aspect of these proposals was that ratepayers would not be on the hook for the energy demands of data centers. It is imperative that some form of this requirement is reintroduced in the legislature in 2027 and passed into law.  

S.867 and S.902 were enormous and overly comprehensive pieces of legislation that required significant amounts of time in committee hearings. The amount of debate, testimony, and stall tactics would be expected to recur if these bills were reintroduced. 

Trying to create a “data center development office” and introduce new incentives for data centers while regulating everything from noise, water, buffers, vibration, and lighting may be too much for each chamber of the General Assembly to take on.  

Local governments are much better suited to respond to the desires of their community. A statewide office would likely be inefficient and unresponsive to the needs of municipalities across the state.  

Lawmakers should quickly advance tailored legislation that plainly requires data centers to pay for the cost of additional generation and transmission they will need. If this capacity results in another power plant being constructed for ratepayers, the data center should bear construction costs commensurate with the proportion of the new capacity its energy demand requires. 

The most free-market measure South Carolina can take with data centers is to encourage them to generate their own power and require them to pay for replacing the energy capacity taken from ratepayers. This solution avoids requiring ratepayers to subsidize what rightfully should be business expenses.  Shifting the costs of corporate energy demand onto residential ratepayers is unacceptable.