6 minPolitics
New Jersey and Indiana chart rival paths on data center power costs
As AI drives a surge in electricity demand, New Jersey and Indiana are taking different approaches to protect ratepayers from data center costs, with New Jersey setting statewide rules and Indiana negotiating utility deals that could cut rates.
The rapid growth of artificial intelligence is intensifying the competition for electricity, and two states are now testing sharply different strategies to keep the cost of that boom off household utility bills. New Jersey has adopted a regulatory framework that sets statewide ground rules for large data centers before they connect to the grid, while Indiana is relying on negotiated agreements between utilities, consumer advocates, and technology companies to manage the financial impact.
New Jersey Governor Mikie Sherrill signed legislation in July requiring the state Board of Public Utilities to create a separate rate structure for large data centers. Under the law, the costs of new substations, transmission lines, and other grid upgrades built primarily for a data center cannot be shifted onto other customers' bills. Large data centers must also commit to paying for at least 85% of the electricity capacity they request for a ten-year period, even if they later scale back operations or close. Regulators are directed to encourage data centers to bring clean generation or energy storage online, use power more efficiently, and reduce demand during emergencies.
Sherrill has paired those ratepayer protections with new disclosure requirements. A separate law signed this week requires data center operators to report their energy and water use to the state twice a year. The administration says the reporting, along with new municipal guidance, will give officials a clearer picture of data center demands and help communities assess local impacts and negotiate with developers.
Indiana is taking a different route. Rather than imposing statewide rules, state regulators approved a deal negotiated by Indiana Michigan Power, the Fort Wayne-based utility serving customers in Indiana and Michigan, along with consumer advocates and major technology companies. The agreement grew out of a wave of large planned projects in the utility's service area. Amazon Web Services announced an $11 billion data center campus near New Carlisle in 2024, while Google announced a $2 billion project in Fort Wayne.
Under the 2025 agreement, new large customers, including data centers, must make long-term financial commitments to pay for the electric service they request, even if their future demand falls short of expectations. Indiana Michigan Power says those commitments allow it to turn new demand into a benefit for existing customers. The utility is now asking regulators to cut base rates by $59 million in 2027, arguing that revenue from large customers makes the reduction possible. If approved, an Indiana household using 1,000 kilowatt-hours of electricity a month would save about $100 a year. The utility is also proposing to freeze all rates on monthly bills for three years, with a decision expected in June 2027.
Daniel Turner, executive director of the energy advocacy group Power The Future, said Indiana's approach is better than New Jersey's more prescriptive framework, but argued neither state has gone far enough to ensure the AI buildout adds power to the grid rather than simply consuming it. "Indiana's approach is definitely the better of the two," Turner said. "At least Indiana is saying, 'Hey, we don't know where this is going, but we're not going to put in all of the guardrails yet to stop progress from happening. Let's work together and figure out what the solution is.'"
Turner said he would make new power generation part of the deal from the start. New Jersey's law encourages data centers to bring clean generation or energy storage online, but Turner said facilities should be built alongside the generation needed to run them and add capacity to the broader grid. "Every data center should be built in conjunction with the necessary power-generating facility to power it and give back to the grid," he said.
Turner suggested that data centers have become a political football, with officials too often choosing sweeping restrictions or open-ended delays instead of working with utilities, developers, and local communities on plans that protect ratepayers while adding needed power. "The solutions to data centers are not complicated issues to solve," he said. "They just require political will."
The Trump administration has sought to turn that argument into a national model. In March, the White House announced a Ratepayer Protection Pledge signed by major technology companies, including Amazon, Google, Meta, Microsoft, OpenAI, Oracle, and xAI. The administration says the pledge commits the companies to cover the cost of additional electricity generation needed for AI data centers rather than pass it along to families.
