Towns seek data center benefits as AI power demand raises bills

U.S. towns and utilities are bargaining with Amazon, Microsoft and other tech companies as AI data centers create new demand for electricity and local infrastructure. The talks matter because the projects can bring large tax receipts, but they also raise questions about who pays for grid upgrades and higher power costs.

Melody Birmingham, executive vice president of NiSource and group president of NiSource Utilities, wrote in Fortune that a new local bargain is emerging around data centers: communities want direct benefits, and utilities are seeking rules that keep existing customers from carrying the cost of new power needs.

Fortune reported that the independent market monitor for PJM, the grid operator serving parts of the mid-Atlantic and Midwest, linked expected data center demand to about $23 billion in higher electricity costs for customers through at least 2028. Birmingham described that as one of the central challenges facing the industry: adding enough power for new facilities while keeping service reliable and bills affordable.

In Hobart, Indiana, a city of about 30,000 people, Birmingham said officials negotiated with Amazon over a proposed data center and secured about $200 million in commitments. She wrote that Hobart’s annual tax levy is about $25 million and said the city plans to use some of the money for parks, youth programs and public safety without raising income taxes. AWS also agreed to recruit from Hobart high schools, according to Birmingham.

Other Indiana projects show similar deal structures, according to Birmingham. LaPorte expects $1 billion in tax collections over 30 years from a Microsoft project, with 15% set aside for schools. Jasper County approved a community benefit plan that Birmingham said includes $98 million upfront, $23 million a year for 10 years and $1 billion in expected tax revenue.

In Henrico County, Virginia, data center revenue is funding a county housing trust, Birmingham wrote. She said the $60 million trust is aimed at workers such as teachers, nurses and factory employees who earn too much for some traditional housing aid but still need help.

The politics can turn sharply when residents believe deals were made without enough public input. In Festus, Missouri, voters removed half the city council this spring after officials supported a $6 billion data center, according to Birmingham. She cited Rick Belleville, a first-time candidate who defeated an eight-year incumbent, as saying the handling of the deal drove the backlash.

Resistance is not limited to one city. Birmingham cited Data Center Watch, a research group, as finding that at least 75 data center projects worth about $130 billion were delayed or blocked across the country in the first three months of 2026.

Utilities are becoming key intermediaries in these negotiations. Joe Bowring, PJM’s independent market monitor, has warned that capacity prices could remain elevated and has argued that large new power users such as data centers should bring their own generation rather than rely on infrastructure paid for by other customers, according to Birmingham.

Some utilities have started to change how they treat large power users. Birmingham wrote that AEP Ohio now requires large-load customers to pay for most reserved capacity whether or not they use it. She also said NIPSCO created a separate company that allows a data center to finance its own generation instead of relying on the existing customer rate base.

NIPSCO has signed agreements with Amazon and Alphabet under that model, Birmingham wrote. She said those data centers are expected to pay for their own electric service and return an estimated $1.4 billion to existing customers, with that amount expected to rise as more projects start operating.

Federal regulators are also examining the issue. Birmingham wrote that the Federal Energy Regulatory Commission in June directed all six regional grid operators to revise or justify their rules for connecting large new energy users and assigning the cost of needed upgrades. She also said AI companies had earlier signed a White House-backed pledge to provide or pay for the power their projects require.

This story draws on original reporting from Fortune.