A bill that would provide state tax rebates to draw data centers to Colorado has run into opposition from critics who warn of the facilities’ large demands for energy and water and potentially higher costs for other electric customers.
The legislation would offer state sales and use tax rebates for construction materials and equipment starting in 2026. Senate Bill 24-085 declares that investing in projects such as data centers “is crucial for the economy of the future” and Colorado, considered a growing high-tech hub, is falling behind in attracting the facilities.
“I look at data centers as infrastructure. Any modern society needs ports and roads and bridges and rail and telecommunications fiber,” said Sen. Kevin Priola, a Democrat from Henderson and one of the bill’s prime sponsors.
Data centers, which house computers that keep the internet running, are a key part of modern society’s infrastructure, Priola said. He also sees construction of data centers as a way to enhance the tax base of communities, including rural areas facing declining revenue because of the closure of coal plants.
The bill cites a report by the U.S. Chamber Technology Engagement Center, a private business group, that says an average data center contributes $32.5 million in economic activity annually to a local community and a typical large data center supports 157 local jobs
But not everyone is convinced of the benefits of so-called “hyperscale” data centers, ones that generally contain more than 5,000 servers and exceed 10,000 square feet. Priola said a senate committee recently postponed consideration of the bill on data centers while amendments addressing some of the concerns are written.
“I really feel that we should just kill the bill, that no amendments would make it acceptable,” said John Gavan, a former member of the Colorado Public Utilities Commission and a vocal critic of the bill.
Gavan’s opposes the legislation because it would incentivize facilities he believes would be a drain on the region’s electric system and water supplies.
Water-based cooling is used to keep down the temperature of the equipment, which uses a lot of energy and generates heat. The Washington Post reported in 2023 that research shows a large data center can consume between 1 million and 5 million gallons of water a day, as much as a city of 10,000 to 50,000 people.
Such water consumption for data centers, given the region’s drying climate and falling flow rates in the Colorado River, is unstainable, Gavan said,
Data centers use 10 to 50 times the energy per floor space of a typical commercial office building and currently account for roughly 2% of U.S. electricity use, according to the Department of Energy. A big surge in need for new electricity sources could derail Colorado’s goals for cutting greenhouse gas emissions and increasing the use of renewable energy, Gavan said.
“We are on this steep decarbonization path to 2030 where we’re going to be shutting down the remaining coal-fired power plants,” Gavan said. “If we had a couple of gigawatts of new (demand) show up, all bets are off.”
Oregon state data shows the Umatilla Electric Cooperative, in the sparsely populated eastern part of the state, is the third-largest emitter of greenhouse gasses because of the area’s cluster of Amazon data centers, The Oregonian newspaper reported.
Sen. Priola said companies are looking to locate data centers in other parts of the country. Several are clustered in northern Virginia, home to nearly 300 of the facilities. Priola said he would rather see data centers open in Colorado than in states where more of the power comes from fossil fuels.
“In Colorado, especially along the Front Range, through policy decisions we’ve made, within the next few years we’re going to be getting power from 90-some-percent renewables,” Priola said.
Gavan, who worked in the information technology field, is also critical of casting data centers as generators of high-paying jobs. “You have more security guards in the data center than technicians.”
In the end, other electric customers will likely bear the costs of paying for the generation and transmission infrastructure to help service any new, large data centers, Gavan said.
The criticisms are similar to those in documents filed with the Public Utilities Commission in response to a proposal by Xcel Energy to offer lower electric rates to QTS Data Centers. The technology company plans four buildings on approximately 67 acres in Aurora.
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Xcel Energy, the state’s largest electric utility, is seeking approval of lower costs for QTS under what is called an economic development rate, a law approved by the Colorado General Assembly in 2018. The target is commercial and industrial electricity users for whom the cost of power is a critical reason for locating or expanding in Colorado.
The complex will cost more than $1 billion, a direct investment in Colorado, and will employ 400 to 600 people during construction and 70 to 85 permanent workers, Xcel Energy told the PUC. Xcel said QTS will pay for a new transmission line and substation for the site.
The city of Aurora approved a rebate of sales and use taxes for the project contingent on the number of jobs and salary levels. Arapahoe County approved a 50% refund of the company’s personal property taxes.
The PUC staff has recommended rejection of the lower electric rates for QTS. The staff said the company hasn’t shown that the break in rates won’t drive up costs for other users. Staffers also expressed concern about the project’s impact on greenhouse gas emissions.