Georgia Senate votes to claw back data center tax breaks

Georgia lawmakers got one step closer to clawing back the state sales tax breaks they put in place for data centers just eight years ago.

The Georgia Senate Friday morning passed a bill that would repeal the sales tax exemptions through 2028 and 2031, respectively. The Peach State is one of the top markets for construction of the computer server-filled warehouses, but many projects are now facing pushback because of the amount of energy, land and water that they use.

Critics say tax breaks offered to data centers are also an unnecessary giveaway given the red-hot demand for computing power. Gov. Brian Kemp vetoed a bill two years ago that would have suspended state sales tax breaks for data centers, arguing the effort would have undermined investments already made by tech companies.

Senate Bill 410 is one of a flurry of data center bills filed this session, but as with most high-profile topics, only a few measures make it to floor for a full vote. Friday was also known as “Crossover Day,” a day in which bills must pass at least one chamber to be generally considered “alive” for the rest of the session.

SB 410 has two major parts. One is the repeal of the tax breaks, and another is designed to protect consumers from paying for infrastructure costs associated with serving the hulking computing centers.

Credit: Miguel Martinez-Jimenez

Credit: Miguel Martinez-Jimenez

The bill did not pass without controversy, however, as critics argued that it did not go far enough to protect customers from paying costs associated with the large server farms. Indeed, the measure contains portions of what was a customer-centric bill that was revived earlier this year after the Georgia Public Service Commission signed off on Georgia Power’s request to add an unprecedented 10,000 megawatts to its power grid over the next five years, mostly to serve data centers flocking to the state.

Georgia Power, the PSC and others maintain that data center operators will have to pay their fair share and that non-data center users will not absorb any of the costs. But the bill’s language is not strong enough to ensure that, said Sen. Chuck Hufstetler, R-Rome.

“My opinion is that the (consumer) protection is not there,” Hufstetler said Friday.

Hufstetler is the author of Senate Bill 34, which would have forced Georgia Power to charge data centers for all new power plants, transmission infrastructure, fuel, and other costs that were only incurred to serve the facilities.

That bill was watered down, however, and eventually got shoehorned into the one that passed Friday.

“Ninety percent of people want this protection,” Hufstetler said. “I don’t know why we don’t make this stronger and codify it into law.”

Georgia Power and utility regulators at the PSC argue that they put guardrails in place to ensure that data center operators pay their fair share and that the rest of the customers don’t absorb those costs.

When introducing SB 410, state Sen. Matt Brass, R-Newnan, said the legislation says the same thing.

Credit: (Ben Gray for the AJC)

“Both parties intend to ensure ratepayers will not pay the tab, will not pay the cost, for upgrades for infrastructure due to data centers,” he said, later adding, “We could not make it any clearer for the courts.”

State Sen. Elena Parent, D-Atlanta, argued while customers will see some rate benefits, there are no assurances that customers won’t pay if those data centers don’t get built or if tenants leave before the contract expires.

What’s more, the cost of building those power plants is typically baked into customer rates for decades, she said.

“The public needs to understand what is going on,” Parent said. “And what is going on is that this body is still scared to tell Georgia Power, ‘no.’”

After a series of rate hikes in recent years, last summer, the PSC voted to keep Georgia Power’s current base rates steady for three more years. The utility also won’t ask to adjust those rates until 2028.

Separately, for the PSC’s approval of its data center expansion, Georgia Power has also pledged to use the data center revenue to tamp down rates by $8.50 between the years of 2029 and 2031. This means that any proposed rate increase for customers will be offset by a decrease of $8.50.

Credit: Arvin Temkar/AJC

But those rates do not include expenses such as what Georgia Power pays for fuel to make electricity at its power plants. Roughly 60% of the new or existing power generation will come from natural gas, which is subject to wide price swings. It also contributes to climate change.

What’s more, the PSC’s staff and the Southern Environmental Law Center have estimated that Georgia Power will have to collect between $50 billion and $60 billion in revenue from customers to cover the cost of the expansion of the life of the new power resources.

“Let me repeat, we will be paying for this for 50 to 60 years,” Parent said.

— Staff writer Drew Kann contributed to this story.

A note of disclosure

This coverage is supported by a partnership with Green South Foundation and Journalism Funding Partners. You can learn more and support our climate reporting by donating at AJC.com/donate/climate.

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