This article was co-authored by Matt Kellogg, principal at Rich Feuer Anderson.

The US energy sector is at an inflection point. According to a study by Grid Strategies analyzing the 2023 Federal Energy Regulatory Commission (FERC) filings of grid planning entities, the forecast of electricity demand growth is up from 2.6 percent to 4.7 percent over the next five years.

Similarly, electrical grid planners forecast peak demand growth of 38GW through 2028. One of the main drivers of increased power demand has been the surge in data center development.

Of the eight regional planning areas’ filings examined by Grid Strategies, seven cited data center development as a main driver of electricity demand growth forecasts.

While much of the increase in data center development can be attributed to continued scaling and innovation within the artificial intelligence and cloud computing industries, it is important to remember that data center infrastructure effectively powers the lives of everyday Americans as well, as many industries move infrastructure to the cloud.

The International Energy Agency (IEA) projects that data centers’ electricity consumption in 2026 could be double that of 2022, equating to around 1,000 TWh, which is roughly equivalent to the current total consumption of Japan.

Given the importance of a functioning grid to everyday life in the US, data centers will be confronted with new regulatory and reputational risk considerations requiring management. These considerations will multiply significantly as more events like the Texas power outage in 2021 occur, and legislators and regulators look to place blame on private industry actors.

One example of what the data center industry can expect occurred in January, when the Energy Information Administration (EIA), an organization within the US Department of Energy (DOE), issued a survey to a group of cryptocurrency mining companies.

The survey requested data related to the companies’ energy usage. Interestingly, EIA requested emergency approval of the survey from the Office of Management and Budget (OMB), which OMB approved, bypassing standard notice and comment periods required by law. Industry participants filed a successful lawsuit in Texas federal court to block the survey on procedural grounds.

Despite the cryptocurrency mining industry’s near-term victory, it is likely that the EIA will re-propose its survey through the required procedural channels. More broadly, the incident should serve as a canary in the coal mine for the entire data center industry.

The EIA possesses authority under 15 US Code § 772, which it could use to compel energy usage reporting if entities are “operating facilities… engaged in… major energy consumption.” In addition, it has broad powers under 15 US Code § 796 to compel the production of books and records, and testimony from industry participants.

Certain lawmakers also view data center energy usage as unproductive and contrary to President Biden’s articulated goal of 100 percent carbon-free US electricity by 2035. These lawmakers have demonstrated a willingness to take action aimed at compelling transparency within the industry.

Again, efforts to target cryptocurrency mining are illustrative for the broader industry. In 2023, several Democratic members of Congress wrote to the DOE and the US Environmental Protection Agency (EPA) to request that the agencies establish mandatory emissions and energy usage reporting regimes for cryptocurrency miners.

Absent the development of new dispatchable sources of baseload renewable power, the US will be hard-pressed to realize the President’s goal with current demand forecasts. As a result, data centers will be squarely in the crosshairs of US regulators and policymakers.

For example, the EPA could use its existing authority under Section 114 of the Clean Air Act (CAA) to require greenhouse gas (GHG) emissions data for facilities emitting more than 25,000 tons of carbon dioxide equivalent. Beyond reporting, Congress could subsequently impose CAA emissions reduction requirements or an emissions charge.

Congress used a similar approach to the oil and natural gas industry. In 2008, Congress mandated the EPA establish an Oil and Natural Gas Systems GHG reporting database through which operators report an annual accounting of GHG emissions data to the EPA.

Subsequently, in 2022, the Inflation Reduction Act established a Methane Emissions Reduction Program and a Waste Emissions Charge which, effectively, taxes emissions above certain levels.

The EPA GHG reporting database is the basis on which that tax is calculated and Data center operators could be subjected to the same playbook. In addition, of particular importance, this could be achieved through an expedited Congressional process known as Budget Reconciliation, which allows the Senate to avoid a filibuster and process legislation on a majority vote (as opposed to a normal 60-vote threshold).

Breakthroughs in artificial intelligence and the proliferation of cloud computing services have placed a spotlight on the data center industry. As warnings mount regarding the strain on the US electrical grid, key stakeholders in the data center industry should be prepared for legislators and regulators across the federal government to compel transparency using its historic playbook of hearings, information requests, and rulemaking.