AN ACT to regulate large‑scale data centers in order to protect ratepayers, water resources, and grid reliability; to require on‑site clean generation, cost‑based rates, infrastructure cost responsibility, disclosures, and reporting for certain data centers; to limit state and local incentives for data centers; and to make related changes to public utilities law.

Whereas, North Carolina's electric and water utility systems are essential public services relied upon daily by households, small businesses, and local governments across the State; and

Whereas, the rapid growth of large‑scale data centers imposes unusually large and concentrated demands on electric generation, transmission, distribution, and water infrastructure; and

Whereas, when the extraordinary infrastructure and resource demands created by such facilities are not fully borne by the facilities themselves, those costs are shifted onto residential customers, small businesses, and local governments through higher utility rates and increased public expenditures, exacerbating cost‑of‑living pressures statewide; and

Whereas, existing economic development incentive programs were not designed to subsidize facilities whose operations require outsized public investments in energy and water infrastructure without proportionate public benefit; and

Whereas, the General Assembly is responsible for protecting North Carolinians from rising utility bills and ensuring affordability by preventing cost‑shifting, protecting ratepayers, and ensuring that data centers bear the full cost of the energy, water, and infrastructure required to support their operations; Now, therefore,

The General Assembly of North Carolina enacts:

REGULATION OF DATA CENTERS

SECTION 1.(a)  Chapter 62 of the General Statutes is amended by adding a new Article to read:

Article 6C.

Data Centers.

§ 62‑129.  Definitions and application of terms.

For purposes of this Article, the following definitions apply:

(1)        Data center. – A facility or group of co‑located facilities under common ownership or control used to house computer systems, servers, network equipment, and associated infrastructure for the storage, processing, or transmission of data. Facilities under common ownership or control, or that are operationally or contractually integrated, whether located on one or multiple parcels, shall constitute one data center for purposes of determining the applicability of any threshold, requirement, limitation, or fee pursuant to this Article.

(2)        Large data center. – A data center that (i) has a projected peak electricity demand of 40 megawatts or greater or (ii) has a projected annual water consumption in excess of one billion liters.

(3)        On‑site clean generation. – Electric generation that is both (i) directly interconnected with a data center and (ii) produced by a clean energy facility or clean energy resource as those terms are defined in G.S. 62‑133.8.

§ 62‑129.1.  Preconstruction disclosure; certificate to operate a large data center.

(a)        Preconstruction Disclosure Statement. – Prior to beginning construction on any new data center, the owner or operator of a proposed data center shall submit a preconstruction disclosure statement, in a form prescribed by the Commission, to the Commission, the Department of Environmental Quality, and each local government in whose jurisdiction the data center would be sited. The preconstruction disclosure statement shall include all of the following information, supported by clear and credible evidence:

(1)        The projected peak electricity demand.

(2)        The projected annual electricity consumption.

(3)        The projected annual water consumption.

(4)        A detailed description of any cooling technologies to be used in the operation of the data center.

(5)        A detailed description of any on‑site clean generation to be used in the operation of the data center.

(b)        Certificate of Operation for Large Data Centers. – No person shall begin the construction or operation of a large data center without having applied for and obtained a certificate of operation from the Commission. The application for a certificate to operate a large data center shall be made in a form prescribed by the Commission and accompanied by the fee required pursuant to G.S. 62‑300(a)(18). The Commission may, after notice and an opportunity for interested parties to be heard, issue a certificate to operate a large data center upon finding that the applicant is fit, capable, and financially able to operate the large data center in accordance with this Article. As a condition for the issuance and continuation of a certificate to operate a large data center, the applicant shall demonstrate to the satisfaction of the Commission all of the following:

(1)        The large data center will operate in compliance with the on‑site clean generation requirement set forth in G.S. 62‑129.2.

(2)        The large data center will operate in compliance with the water use standards for data centers adopted by the Department of Environmental Quality under G.S. 143‑355.5A.

(3)        The large data center will purchase electric service from an electric public utility in accordance with G.S. 62‑129.3 or G.S. 62‑129.4, as applicable, at rates that are commensurate to the electric public utility's full marginal cost of providing service to that large data center, including any incremental costs incurred by the electric public utility to construct or expand generation facilities, transmission and distribution lines, substations, and any other infrastructure investments necessary to serve that large data center's projected load.

(4)        The large data center will purchase water and sewer services at rates that are commensurate to the full marginal cost of providing service to that large data center by a unit of local government, as defined in G.S. 162A‑201, or a water or sewer utility, including any incremental costs incurred to construct or expand water and wastewater systems.

(5)        That other members of the using and consuming public will be held harmless and protected from bearing any increased costs as a result of providing electric, water, or sewer services to the large data center.

(6)        That the applicant will operate the large data center in accordance with any other requirement determined by the Commission to be necessary to protect the public interest.

(c)        Effective Date. – A certificate of operation shall be effective from the date issued by the Commission unless otherwise specified and shall remain in effect until terminated either under its own terms or until suspended or revoked by the Commission as provided in subsection (d) of this section.

(d)       Certificate Review; Suspension and Revocation. – Upon the request of an electric public utility, the Public Staff, or a person having an interest in the large data center's operation, the Commission may review the certificate to determine whether the owner or operator of the large data center is conducting operations in compliance with this Article. After notice to the large data center's owner or operator, the Commission may suspend the certificate and enter upon a hearing to determine whether the certificate should be revoked. After the hearing, and for good cause shown, the Commission may, in its discretion, reinstate a suspended certificate, continue a suspension of a certificate, or revoke a certificate.

§ 62‑129.2.  On‑site clean generation requirement.

(a)        No person shall begin operation of a large data center without installing sufficient on‑site clean generation capacity to offset at least twenty‑five percent (25%) of the data center's projected peak electricity demand. Such generation capacity shall be operational upon the date that the large data center commences commercial operations. No off‑site renewable energy credits, virtual power purchase agreements, or similar instruments may be credited toward satisfying the on‑site clean generation requirement under this section.

(b)        The Commission may increase the minimum percentage of on‑site clean generation capacity that a large data center must maintain relative to its projected peak demand upon finding that additional on‑site clean generation is necessary to maintain the reliability of the electric grid and protect other customers from rate increases and is otherwise consistent with the public interest.

(c)        The Commission may grant a variance to a large data center from the on‑site clean generation requirement upon finding that (i) strict compliance with the on‑site clean generation requirement would be technologically infeasible for the proposed large data center and (ii) the applicant will implement equivalent grid mitigation measures at the applicant's expense.

§ 62‑129.3.  Electric rates for large data centers.

(a)        Each electric public utility shall file for Commission approval rates for the provision of electric service to large data centers. The Commission may approve a tiered rate schedule that includes different prices, terms, or conditions for different classes of large data centers based on load requirements or other factors related to the costs of serving large data center customers.

(b)        The Commission shall not approve a rate schedule filed under this section unless the Commission finds that the rates are sufficiently designed to ensure all of the following:

(1)        That large data center customers are responsible for the entire cost of any capital investments or incremental operational expenses necessary for the electric public utility to serve large data center customers.

(2)        That other retail customers will be protected from (i) incurring any rate increases as a result of serving large data center customers or (ii) assuming additional risk associated with having to bear any stranded costs as a result of large data center customers ceasing operations or else consuming less electricity than initially requested.

§ 62‑129.4.  Special high‑capacity rates for large data centers.

(a)        The Commission shall require a large data center to receive electric service under a special high‑capacity rate upon determining that rates approved under G.S. 62‑129.3 would not be commensurate with the electric public utility's full marginal cost of providing service to that large data center, including any incremental costs that would be incurred by the electric public utility to construct or expand generation facilities, transmission and distribution lines, substations, and any other infrastructure investments necessary to serve that large data center's projected load.

(b)        The Commission may establish by rule certain categories of large data centers that would be required to receive electric service under a special high‑capacity rate.

(c)        Upon determination by the Commission that a special high‑capacity rate is required, an electric public utility shall negotiate in good faith with the owner or operator of a large data center an agreement to provide electric service at such prices, terms, and conditions necessary to compensate the electric public utility's full marginal cost of providing service to the large data center over the term of the agreement, subject to approval by the Commission.

(d)       The Commission shall approve the special high‑capacity rate fixed by contract between an electric public utility and a large data center upon finding that the rate satisfies the conditions set forth under G.S. 62‑129.1(b) and is otherwise consistent with the public interest.

§ 62‑129.5.  Exclusion from economic development incentive programs.

(a)        Notwithstanding any other provision of law, data centers shall be ineligible to receive any infrastructure grants or other incentives funded directly or indirectly by utility ratepayers.

(b)        Notwithstanding any other provision of law, a local government shall not grant or provide to a data center any local tax incentive, subsidy, or financial assistance, including property tax abatements, deferrals, rebates, grants, or payments in lieu of taxes. Nothing in this subsection prohibits local governments from providing generally available services or infrastructure on the same terms offered to similarly situated commercial or industrial users.

(c)        Nothing in this section shall be construed to prohibit local governments from exercising zoning or land use authority.

§ 62‑129.6.  Annual report.

(a)        Each person who owns or operates a large data center shall file an annual report to the Commission and the Department of Environmental Quality that provides the following information regarding the large data center's operations during the prior year:

(1)        The actual amount of electricity consumed.

(2)        The actual amount of water used.

(3)        The actual amount of electricity generated on‑site.

(4)        Data indicating the efficiency of the cooling system, as quantified using metrics approved by the Department of Environmental Quality.

(5)        Any additional information requested by the Commission for purposes of ensuring compliance with this Article.

(b)        Annual reports filed by large data centers are public records, as defined in G.S. 132‑1, and shall be made readily available by the Commission on its website.

§ 62‑129.7.  Rules.

Pursuant to G.S. 62‑31, the Commission may adopt rules to implement the provisions of this Article. In addition, the Commission shall adopt rules for verifying the amount of generation capacity maintained by a large data center in accordance with the on‑site clean generation requirement in G.S. 62‑129.2.

SECTION 1.(b)  G.S. 62‑300(a) is amended by adding a new subdivision to read:

(18)    Two hundred fifty dollars ($250.00) with each application for a certificate to operate a large data center filed pursuant to G.S. 62‑129.1(b).

SECTION 1.(c)  The rate schedule required to be submitted for approval by the Utilities Commission pursuant to G.S. 62‑129.3, as enacted by subsection (a) of this section, shall be submitted by the electric public utility no later than July 1, 2028. Effective January 1, 2029, an electric public utility shall not provide electric service to a large data center except under the terms of a rate schedule or special high‑capacity rate approved by the Utilities Commission in accordance with G.S. 62‑129.3 or G.S. 62‑129.4, as applicable.

WATER USE STANDARDS FOR DATA CENTERS

SECTION 2.(a)  Article 38 of Chapter 143 of the General Statutes is amended by adding a new section to read:

§ 143‑355.5A.  Water use standards for data centers.

(a)        The Department shall adopt rules establishing water use standards for data centers regulated under Article 6C of Chapter 62 of the General Statutes to ensure the protection of surface water and groundwater resources. The water use standards adopted by the Department shall require data centers to employ closed‑loop or reclaimed water systems to the maximum extent practicable.

(b)        The water use standards adopted by the Department shall not permit a data center to use an evaporative cooling system. For purposes of this subsection, an evaporative cooling system means any cooling system that consumes water through evaporation as a primary method of heat rejection.

SECTION 2.(b)  The Department of Environmental Quality shall adopt temporary rules to implement the water use standards for data centers and shall adopt permanent rules to replace the temporary rules. Temporary rules adopted in accordance with this section shall remain in effect until permanent rules that replace the temporary rules become effective.

REPEAL SALES TAX EXEMPTION FOR DATA CENTERS

SECTION 3.(a)  G.S. 105‑164.3(47), 105‑164.3(79), 105‑164.3(201), 105‑164.13(43a)b., 105‑164.13(55), and 105‑164.13(55a) are repealed.

SECTION 3.(b)  This section becomes effective January 1, 2027, and applies to sales made on or after that date.

EXCLUDE DATA CENTERS FROM STATE ECONOMIC DEVELOPMENT INCENTIVES

SECTION 4.(a)  Article 10 of Chapter 143B of the General Statutes is amended by adding a new section to read:

§ 143B‑435.2.  Ineligible projects.

Notwithstanding any other provision of law, data centers, as defined in G.S. 62‑129, shall be ineligible to receive any grant, loan, or other incentive provided under this Article.

SECTION 4.(b)  G.S. 143B‑437.01 reads as rewritten:

§ 143B‑437.01.  Industrial Development Fund Utility Account.

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(a1)      Definitions. – The following definitions apply in this section:

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(5)        Eligible industry. – A company headquarters or a person engaged in the business of air courier services, information technology and services, manufacturing, or warehousing and wholesale trade.

(6)        Information technology and services. – An industry in one of the following, as defined by NAICS:

a.         Data processing industry group 518.

b.         Software publishers industry group 5112.

c.         Computer systems design and related services industry group 5415.

d.         An internet activity included in industry group 519130.

Information and technology services does not include the operation of data centers, as defined in G.S. 62‑129.

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FUEL COST RECOVERY MODIFICATIONS

SECTION 5.  G.S. 62‑133.2(d) reads as rewritten:

(d)      The Commission shall provide for notice of a public hearing with reasonable and adequate time for investigation and for all intervenors to prepare for hearing. At the hearing the Commission shall receive evidence from the utility, the Public Staff, and any intervenor desiring to submit evidence, and from the public generally. In reaching its decision, the Commission shall consider all evidence required under subsection (c) of this section as well as any and all other competent evidence that may assist the Commission in reaching its decision including changes in the cost of fuel consumed and fuel‑related costs that occur within a reasonable time, as determined by the Commission, after the test period is closed. The Commission shall incorporate in its cost of fuel and fuel‑related costs determination under this subsection the experienced over‑recovery or under‑recovery of reasonable costs of fuel and fuel‑related costs prudently incurred by the electric public utility, during the test period, based upon the prudent standards set pursuant to subsection (d1) of this section, in fixing an increment or decrement rider. Upon request of the electric public utility, the Commission shall also incorporate in this determination the experienced over‑recovery or under‑recovery of costs of fuel and fuel‑related costs through the date that is 30 calendar days prior to the date of the hearing, provided that the reasonableness and prudence of these costs shall be subject to review in the utility's next annual hearing pursuant to this section. The Commission shall use deferral accounting, and consecutive test periods, in complying with this subsection, and the over‑recovery or under‑recovery portion of the increment or decrement shall be reflected in rates for 12 months, notwithstanding any changes in the base fuel cost in a general rate case. Any experienced over‑recovery or under‑recovery of reasonable fuel and fuel‑related costs prudently incurred shall accrue interest at the commercial paper rate as identified by the Federal Reserve for A2/P2 nonfinancial issuers, or reasonable successor thereto, on a weighted average basis over the applicable time period. The burden of proof as to the correctness and reasonableness of the charge and as to whether the cost of fuel and fuel‑related costs were reasonably and prudently incurred shall be on the utility. The Commission shall allow only that portion, if any, of a requested cost of fuel and fuel‑related costs adjustment that is based on adjusted and reasonable cost of fuel and fuel‑related costs prudently incurred under efficient management and economic operations. In evaluating whether cost of fuel and fuel‑related costs were reasonable and prudently incurred, the Commission shall apply the rule adopted pursuant to subsection (d1) of this section. To the extent that the Commission determines that an increment or decrement to the rates of the utility due to changes in the cost of fuel and fuel‑related costs over or under base fuel costs established in the preceding general rate case is just and reasonable, the Commission shall order that the increment or decrement become effective for all sales of electricity and remain in effect until changed in a subsequent general rate case or annual proceeding under this section.

PERFORMANCE‑BASED REGULATION CHANGES

SECTION 6.(a)  G.S. 62‑133.16 reads as rewritten:

§ 62‑133.16.  Performance‑based regulation authorized.

(a)        Definitions. – For purposes of this section, the following definitions apply:

(1)        Affordability performance incentive mechanism or affordability PIM means a performance incentive mechanism that links electric public utility revenue or earnings to measurable reductions in customer energy burdens, arrearages, disconnections, or other affordability outcomes, with a particular focus on low‑income customers, approved by the Commission.

(1)(1a) Cost causation principle means establishment of a causal link between a specific customer class, how that class uses the electric system, and costs incurred by the electric public utility for the provision of electric service.

(2)        Decoupling rate‑making mechanism means a rate‑making mechanism intended to break the link between an electric public utility's revenue and the level of consumption of electricity on a per customer basis by its residential customers.

(3)        Distributed energy resource or DER means a device or measure that produces electricity or reduces electricity consumption and is connected to the electric distribution system, either on the customer's premises or on the electric public utility's primary distribution system. A DER may include any of the following: energy efficiency, distributed generation, demand response, microgrids, energy storage, energy management systems, and electric vehicles.

(4)        Earnings sharing mechanism means an annual rate‑making mechanism that shares surplus earnings between the electric public utility and customers over the period of time covered by a MYRP.

(4a)      Efficiency performance incentive mechanism or efficiency PIM means a performance incentive mechanism that links electric public utility revenue or earnings to measurable improvements in system efficiency or cost containment, including peak load reduction or efficient use of the system, reductions in system loss, verified deferral or avoidance of capital expenditures through non‑wires alternatives, or other energy efficiency outcomes approved by the Commission that exceed those already required by State or federal law.

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(c)        Application. – An electric public utility shall be permitted to submit a PBR application in a general rate case proceeding initiated pursuant to G.S. 62‑133. A PBR application shall include a decoupling rate‑making mechanism, one two or more PIMs, and a MYRP, including both an earnings sharing mechanism and proposed revenue requirements and base rates for each of the years that a MYRP is in effect or a method for calculating the same. A PBR application shall include, at a minimum, one affordability PIM and one efficiency PIM. The PBR application may also include proposed tracking metrics with or without targets or benchmarks to measure electric public utility achievement. The following additional requirements apply to a PBR application:

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(d)       Commission Action on Application. –

(1)        The Commission shall approve a PBR application by an electric public utility only upon a finding that a proposed PBR would result in just and reasonable rates, is in the public interest, and is consistent with the criteria established in this section and rules adopted thereunder. In reviewing any such PBR application under this section, the Commission shall consider whether the PBR application:

a.         Assures that no customer or class of customers is unreasonably harmed and that the rates are fair both to the electric public utility and to the customer.

b.         Reasonably assures the continuation of safe and reliable electric service.

c.         Will not unreasonably prejudice any class of electric customers and result in sudden substantial rate increases or rate shock to customers.

d.         Incorporates, at a minimum, all of the following: (i) an affordability PIM designed to reduce low‑income energy burdens or other affordability outcomes, (ii) an efficiency PIM designed to encourage peak load reduction or efficient use of the system, encourage energy efficiency, or otherwise reduce system costs in a manner that is measurable, verifiable, and exceeds any comparable standard otherwise required by State or federal law, and (iii) any performance metrics, targets, and independent verification protocols sufficient to ensure that any awards or penalties reflect measurable performance and to minimize gaming or cost‑shifting.

(2)        In reviewing any such PBR application under this section, the Commission may consider whether the PBR application:

a.         Encourages peak load reduction or efficient use of the system.

b.         Encourages utility‑scale clean energy and storage.

c.         Encourages DERs.

d.         Reduces low‑income energy burdens.

e.         Encourages energy efficiency.

f.          Encourages carbon reductions.

g.         Encourages beneficial electrification, including electric vehicles.

h.         Supports equity in contracting.

i.          Promotes resilience and security of the electric grid.

j.          Maintains adequate levels of reliability, power quality, and customer service.

k.         Promotes rate designs that yield peak load reduction or beneficial load‑shaping.

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SECTION 6.(b)  This section is effective when it becomes law and applies to any rate‑making mechanisms filed by an electric public utility on or after that date.

APPROPRIATIONS

SECTION 7.(a)  There is appropriated from the General Fund to the Department of Environmental Quality the sum of two hundred forty thousand dollars ($240,000) in recurring funds beginning in the 2026‑2027 fiscal year to be used for the adoption and implementation of water use standards for data centers.

SECTION 7.(b)  There is appropriated from the General Fund to the Utilities Commission the sum of five hundred thousand dollars ($500,000) in recurring funds beginning in the 2026‑2027 fiscal year to be used for purposes consistent with this act.

EFFECTIVE DATE

SECTION 8.  Except as otherwise provided, this act becomes effective July 1, 2026.