A key New Jersey Senate committee has backed two measures seeking to limit the energy that artificial intelligence data centers can take out of the transmission and distribution system. 

Forecasts predict the state will struggle to meet a dramatic surge in electricity demand in the next two decades. 

The Senate Environment and Energy Committee backed S4143, which would require power for data centers to be from clean energy sources or nuclear power plants, or a combination of both. It also requires “no net decrease of verifiable … renewable energy and energy from nuclear power plants supplied to the transmission and distribution system.” 

The bill, which passed March 17 on a 3-2 party line vote, also would require that AI data centers seeking local permits submit an energy use plan to the New Jersey Board of Public Utilities (BPU) for approval. 

In a separate 3-2 vote, the committee also backed a nonbinding resolution, SR125, that urges all states within the PJM region to “enact policies that will require data centers to obtain their electricity from new zero- or low-emission sources of energy.” 

The two measures highlighted the state’s growing concern over handling the expected increase in data centers and AI facilities, as well as the conflicting desire to reap the economic benefits of the high-investment facilities. 

Chairman Sen. Bob Smith (D), who co-sponsored the bill and the resolution, said after the hearing that data and AI centers consume 10 to 20 times as much energy as other facilities. While the state “would love to have them,” the centers need to pay their way, he said. 

“These bills are designed to put some logic and sanity into future development in AI data,” he said. “My contention is that we, the ratepayers of New Jersey, shouldn’t be paying for them. We should require that they bring their own energy, not consume the energy we’re already using and the energy storage that we already paid for, the transmission lines that we already paid for. They need a bigger financial responsibility.” 

He said he expects to promote the resolution to other states in the PJM region to pass similar resolutions and pressure PJM to comply. 

Supply Shortfall

The committee’s vote followed the March 13 release of the first draft of the next state Energy Master Plan, which predicts a 66% increase in electricity demand by 2050 if the state pursues the same strategy outlined in the 2019 master plan. The new plan predicts much greater increases if the state follows one of the three suggested paths detailed in the plan, which advocates for greater electrification.  

State and PJM officials say the dramatic future power imbalance stems from the slow pace of new energy sources coming online and the faster rate fossil fuel generators are closing. The expected development of data centers and AI facilities, with their heavy use of electricity, is another key driver of the demand surge. (See NJ Releases Electrification-focused Energy Master Plan.) 

New Jersey officials say the supply shortfall is a key reason behind a 20% hike in residential electricity rates set to take effect in June as a result of a Basic Generation Service (BGS) auction in February. (See NJ Conference Confronts Electricity Demand Squeeze.) 

Environmental group members who spoke at the nearly three-hour hearing in Trenton welcomed the two measures, with some saying that without the protection of S4143, the state could end up using carbon-emitting generation sources. 

“This data center growth could derail New Jersey’s progress toward clean energy goals and lead to increased fossil fuels,” said Taylor McFarland, conservation manager for the Sierra Club’s New Jersey chapter. “It’s critical for New Jersey to be ahead of the curve and already have regulations and restrictions in place for these data centers so that our environment and our wallets are protected. 

“The only way to best tackle the challenge is by requiring data centers to operate through additionality of power instead of (it) being extracted” from existing sources. “Most importantly, this additional power must come from clean energy sources so that we avoid the addition of extracted and polluting fossil fuel driven power.” 

Deterrent Effect

Business groups, however, expressed concern the requirements of the bill would deter AI and data center developers from coming to the state. 

Ray Cantor, a lobbyist for New Jersey Business & Industry Association (NJBIA), one of the state’s largest business groups, said he agreed with the sentiment of the bill but said the requirements would be excessive and prompt developers to look to other states. 

“AI centers coming to New Jersey need to have their own source of power,” he said. “They are enormous drains or energy users, and we are a net importer of energy. We don’t have enough power generated in New Jersey … to supply these AI data centers.” 

But he worried that the bill put “certain impediments in place.” 

“It requires an energy usage plan. That energy usage plan is not just saying you have to use have your own energy. It’s talking about how you construct your building. It’s talking about the water systems you must use, and other facets of that building,” he said. “It’s just another regulatory process, another regulatory approval that is really not needed … for these facilities to be located. I think they know how to build their own facilities well enough without us telling them.” 

Michael Egenton, a lobbyist for the New Jersey State Chamber of Commerce, suggested the state consider offering incentives to companies that want to put AI and data centers in the state if they use renewable energy. 

“We should be encouraging them to open up operations in our state, and not placing hurdles, impediments, mandates and fines for compliance,” he said. 

Reporting Emissions

The committee also backed S4117, the Climate Corporate Data Accountability Act, which would require companies with annual revenues of $1 billion or more to report their annual greenhouse emissions to the New Jersey Department of Environmental Protection (DEP) and nonprofits selected by the DEP. 

The bill requires the companies to report for four years their “Scope 1” emissions, or the direct emissions by the company, and their “Scope 2” emissions, those that stem from the company’s electricity, heat and cooling systems. The companies after five years would have to report their “Scope 3” emissions, which includes those from purchased goods and services, business travel, employee commutes, and the processing and use of sold products. 

The bill also enables the DEP to set a fee on the companies to recover administration costs. 

Doug O’Malley, executive director of Environment NJ, said the $1 billion threshold ensures only large companies would be affected, and the emissions reporting requirements would force them to calculate how much pollution they generate. 

That will “ensure that the largest companies know what their emissions are, with the idea that obviously knowledge is power, sunlight is the best disinfectant,” he said. “And then with that knowledge, we can ultimately look to reductions from the largest emitters in this country.” 

Business groups expressed concern at the burden reporting would place on companies, especially small and medium-sized business and especially if they had to report in other states with similar requirements, such as California, as well. 

Cantor, of the NJBIA, which opposes the bill, said reporting emission on “Scope 3 is extremely difficult.” 

“It’s costly, it’s expensive, it’s confusing, and I don’t believe that this sort of gets us to where we want to go,” he said. “It’s going to require those customers and suppliers to do their own investigation, and they may not be sophisticated enough to do that, to report back to you. It’s going to impact a lot of New Jersey businesses.”