Overview:
- Michigan Governor Gretchen Whitmer's new tax exemption for large data centers aims to attract tech giants like Google and Microsoft.
- These centers' high water and energy use sparks concerns about climate goals, water resources, and utility bills.
- Environmentalists warn that the energy demands could extend Michigan's fossil fuel reliance and hike electricity rates.
- The state's clean energy plan includes a provision to keep fossil fuel plants running if demand exceeds capacity.
Gov. Gretchen Whitmer signed a use tax exemption for large data centers in Michigan last month, which could provide incentives for wealthy companies like Google and Microsoft to locate facilities in Michigan. A separate sales tax exemption was presented to the Governor on Jan. 8, but has not been signed.
The tax breaks have drawn criticism because of the facilities’ heavy water and energy demands that threaten to derail state climate goals, endanger water resources and increase residents’ utility bills. However, some say data centers will bring needed investment to areas like Benton Harbor, which could see as much as $21 million in annual property taxes from a proposed data center development.
Environmental advocates have expressed alarm that the facilities’ massive energy demands could prolong Michigan’s reliance on fossil fuels as the state aims to achieve 100% renewable energy by 2040. The Michigan clean energy package passed in 2023 includes an “offramp” provision allowing fossil fuel plants to stay online if there is insufficient capacity to meet demand.
Dan Scripps, chairman of Michigan Public Service Commission, told Crain’s Grand Rapids Business last week that Michigan could see data center developments that are larger in scale than anything that currently exists in Michigan’s manufacturing sector.
Scripps also expressed concern that utility customers could end up paying for stranded assets if utilities build infrastructure to accommodate data centers that don’t end up locating in the state.
Such costs could come on top of Michigan electricity rates that already favor industrial users. Abby Clark, Midwest campaign manager for the Natural Resources Defense Council, previously told Planet Detroit that industrial and commercial customers in Michigan pay much lower rates than residential users. She said that disparity could grow if utilities absorb additional costs.
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The Michigan House approved a bipartisan measure exempting large data centers from sales tax, sparking debate over environmental impacts on the state’s climate goals and water resources.
Data centers can also use up to five million gallons of water a day to cool servers, which could potentially impact groundwater. An amendment to the sales tax bill now before the governor would require data centers to connect to municipal water systems.
But environmental advocates have said that even using municipal water, data centers could still impact groundwater if water utilities end up using significantly more groundwater because of them. They also warned that water systems could cut deals with data centers and charge other customers more.
MPSC, municipalities could still add environmental and ratepayer protections
Given the bipartisan support for the data center bills, advocates may have to look outside the Legislature and Governor’s office if they want to add environmental or ratepayer protections.
“Any progress we might be able to make is probably going to happen either at the MPSC
or at the local level,” Christy McGillivray, legislative and political director for the Sierra Club Michigan Chapter, told Planet Detroit.
McGillivray added that advocates could pressure the MPSC to disallow new fossil fuel generation to power data centers through the integrated resource plan process, where utilities forecast customer power needs and lay out plans for meeting those needs. Environmental and ratepayer advocacy groups could also work to ensure that customers are protected from subsidizing the cost of bringing data centers online.
Scripps told Crain’s he wanted to ensure customers weren’t left “holding the bag” if a data center uses less power than expected or leaves the state entirely.
McGillivray said the MPSC should be “demanding receipts” or proof from utilities that they have a customer for electricity before they are allowed to build generation or transmission infrastructure for facilities that other customers may need to pay for.
Ohio recently moved to protect residents from stranded costs with an agreement involving the Ohio utility AEP, the Public Utilities Commission of Ohio, consumer advocates and businesses that require data centers larger than 25 megawatts to pay for 85% of the power they expect to need each month, even if they end up using less.
The agreement also requires companies to show they are financially viable and pay an exit fee if they cancel a project or can’t meet obligations in their electric service contracts. These requirements would last for 12 years, including a 4-year ramp up period.
McGillivray said that local units of government could also demand some of the environmental protections that advocates had sought in state legislation or move to protect vulnerable residents from other threats like the emissions from diesel generators that facilities often use as backup power.