Fordwell’s 2026 State of the Union: The Year Data Center Policy Was Forced to Grow Up

The Accountability Era Has Arrived

For the better part of the last three years, data center development was driven by market momentum rather than regulatory design.

States competed. Incentives flowed. Utilities revised load forecasts upward. Dramatically upward. Legislatures celebrated megawatts as economic development wins, often without asking who would ultimately bear the cost.

But as general assemblies across the country convene in 2026, something has shifted.

The industry hasn’t slowed down. Policy has simply caught up.

Across the country, lawmakers are asking harder questions about cost allocation, water and energy intensity, grid reliability, and local control. Governors are rethinking incentive structures, particularly as dozens of gubernatorial races heighten sensitivity around ratepayer impacts and infrastructure costs. Public utility commissions are stress-testing load forecasts. Communities are organizing with new sophistication.

This is no longer the incentive era. It is the accountability era.

The Southeast: Boom Meets Backlash

In the Southeast, expansion collided with reality.

Utilities across the region projected explosive growth tied to AI-driven load, with Georgia alone forecasting up to 10 gigawatts of new demand. But emerging analysis suggests some utilities may be overestimating the scale and timing of the AI boom, raising concerns about stranded infrastructure, premature generation build-out, and long-term ratepayer exposure.

Those concerns are no longer abstract.

In Georgia, the House advanced legislation designed to prevent utilities from passing data center-related infrastructure costs onto residential customers. The “cost-causer-pays” principle, once largely theoretical, is now becoming statutory language. At the same time, communities across metro Atlanta have mobilized against dense clusters of facilities, pushing for moratoria, zoning pauses, and deeper environmental review as data centers encroach closer to neighborhoods.

In Florida, lawmakers are considering a new regulatory framework that would formalize siting requirements, disclosure obligations, and incentive limitations, a clear signal that permissive growth is no longer assumed.

Kentucky legislators are advancing guardrails to ensure hyperscale facilities finance their own utility infrastructure. 

South Carolina has convened legislative discussions focused on oversight and grid impacts, and in Texas, lawmakers are openly debating how much authority local governments should retain over data center approval—a notable shift in a state long defined by deference to development.

The Southeast isn’t retreating from growth, but it is redefining the terms and insisting that growth come with accountability.

The Midwest: Incentives on Pause, Local Power on the Rise

If the Southeast represents recalibration, the Midwest represents restraint.

In Michigan, at least 19 municipalities have paused or restricted data center development amid concerns over water use, energy demand, and land conversion, a striking assertion of local control in a region once eager to welcome hyperscale investment.

In Illinois, Governor J. B. Pritzker announced a two-year suspension of state tax incentives for new data centers, signaling that economic development policy must be reconciled with grid capacity and environmental realities.

But the Midwest’s shift is not just happening in statehouses.

In one widely cited case, a Midwestern farmer turned down a multimillion-dollar offer to sell family land for a data center campus, not because the money wasn’t compelling, but because the project would permanently alter water access, land use, and the legacy he intended to pass on. That decision captured something policymakers are now grappling with: data centers don’t just change balance sheets. They change places.

The Midwest’s message is increasingly clear: incentives are no longer automatic. Community consent and infrastructure planning now carry equal weight.

The West Coast: Environmental Scrutiny Stays Mainstream

On the West Coast, policy maturity is being driven by environmental rigor and ratepayer protection.

In California, legislative proposals aim to shield ratepayers from subsidizing large-load customers while incentivizing cleaner, more efficient technologies. Lawmakers are exploring mechanisms that require data centers to internalize grid upgrade costs and meet sustainability benchmarks, often by embedding environmental accountability directly into approval processes.

Elsewhere in the region, like South Dakota, proposals would require facilities to secure permits not only from host jurisdictions, but also from neighboring cities and counties, reflecting concern that infrastructure strain does not stop at municipal boundaries.

Across the West, policy debates increasingly center on three pillars:

Carbon intensity.
Water scarcity.
Transmission bottlenecks.

The West Coast is not anti-growth; it is anti-externality.

The Northeast: Climate Alignment and Cost Discipline

In the Northeast, data center policy is being filtered through the lens of climate commitments and ratepayer fairness.

In New York, proposals have surfaced to impose a moratorium on certain data center permits while regulators examine grid impacts. At the same time, Governor Kathy Hochul has directed the Public Service Commission to determine how data centers can be required to pay their fair share of infrastructure costs. This type of infrastructure investment is sure to be on the rise in the next few years. 

In New Jersey, legislative committees have advanced bills aimed at monitoring, and potentially curbing, large-scale power consumption tied to data center growth.

Across the region, lawmakers are wrestling with a central tension: how to reconcile aggressive decarbonization mandates with the rapid expansion of digital infrastructure.

Consensus remains elusive, but scrutiny does not.

What “Grew Up” in 2026

So, what changed this year?

Three major things:

First, cost allocation moved to the center of the debate.
Legislatures across regions are codifying protections to prevent residential customers from subsidizing hyperscale infrastructure. Affordability is the buzz word this session. 

Second, local governments rediscovered their leverage.
Moratoria, zoning pauses, and regional permitting proposals are reshaping timelines.

Third, utilities are being asked to defend their forecasts.
AI-driven load growth may be real, but so is the risk of overbuilding.

The maturation of policy does not signal hostility toward digital infrastructure, in fact, it signals permanence.

Data centers are no longer novel economic development wins. They are critical infrastructure with political, environmental, and fiscal consequences. And as always, critical infrastructure invites government oversight.