North Carolina’s current framework treats data center load growth as an economic development opportunity subsidized partly by existing ratepayers

Decision Lens

House Bill 1063 directly targets the financial architecture that made North Carolina attractive: subsidized infrastructure costs, equipment tax exemptions, and flexible clean energy accounting via RECs. If enacted, the bill requires operators to internalize full marginal infrastructure costs, demonstrate 25% on-site clean generation capacity before breaking ground, and absorb stranded-cost risk if they later reduce load. The North Carolina Utilities Commission would gain authority to mandate special high-capacity contracts and escalate the on-site generation threshold over time. For operators mid-planning on North Carolina projects, the compliance burden shifts materially before a single rack is installed.

90-Second Brief

Today, north Carolina’s House Bill 1063, the Ratepayer and Resource Protection Act, proposes the most comprehensive state-level regulatory framework targeting data center energy costs filed in the current legislative session. The bill applies to facilities with peak demand of at least 40 MW or annual water use exceeding one billion liters. It bans RECs and VPPAs as compliance instruments for the 25% on-site clean energy mandate, prohibits evaporative cooling, and removes state economic development incentives including equipment sales tax exemptions starting in 2027. The bill has passed its first House reading and is in the rules committee.

What’s Actually Happening

The bill’s architecture reflects a deliberate structural shift. North Carolina’s current framework treats data center load growth as an economic development opportunity subsidized partly by existing ratepayers. HB 1063 inverts that logic. Large data centers — defined as facilities at or above 40 MW peak demand or one billion liters of annual water use — must secure a certificate of operation from the Utilities Commission before construction. That certificate requires demonstrated financial capability and compliance with the new standards.

The on-site clean energy mandate requires 25% of projected peak demand from physically connected generation — RECs and off-site PPAs do not qualify. Operators must own or directly contract generation assets at the site level, not across a portfolio. The Utilities Commission retains authority to raise that threshold if grid reliability or ratepayer costs require it, introducing regulatory discretion that could expand obligations after initial project approval.

Utilities would be required to develop rate structures ensuring data centers cover the full marginal cost of new generation, transmission, and distribution. Where standard tariffs are insufficient, the Commission can mandate negotiated high-capacity contracts. Stranded-cost risk moves entirely to the data center operator.

Why It Matters for Global Heads of Data Center Energy?

Three levers that have historically made North Carolina a tier-one site selection market are targeted simultaneously: favorable economics via tax exemptions and incentives, flexible clean energy accounting, and infrastructure cost-sharing across the utility base.

The on-site generation requirement is operationally significant. A 40 MW facility must demonstrate 10 MW of physically connected clean generation before receiving a certificate of operation. At scale, a 200 MW campus would require 50 MW of on-site generation — a capital commitment that must be secured before construction begins. The explicit prohibition on RECs and off-site agreements closes the compliance path that most portfolio-level clean energy strategies currently rely on. This requires site-specific generation infrastructure, not an accounting adjustment.

The evaporative cooling prohibition forces a technology change at the design stage. Most hyperscale thermal management strategies still incorporate evaporative systems in part. Closed-loop or reclaimed water alternatives increase capital cost and, in some configurations, reduce cooling efficiency. For facilities in the planning or permitting phase, this adds redesign risk.

Removal of equipment sales tax exemptions in 2027 and exclusion from state economic development programs compounds the capital picture. These incentives have been material factors in site selection models across the industry.

The Forward View

HB 1063 is at first reading and faces a Republican-majority General Assembly in a state where data center development has had bipartisan support. The probability of passage in its current form is uncertain. However, the bill’s existence signals that the North Carolina regulatory environment is no longer stable, and multiple local moratoriums — Canton, Clyde, Haywood County — confirm this is not isolated legislative noise.

Even if the bill stalls, its specific mechanisms — on-site generation mandates, stranded-cost liability transfer, REC prohibition for compliance — are likely to re-emerge in amended or successor legislation. Operators with North Carolina sites in the interconnection queue or pre-development should model the cost impact of the on-site generation requirement and the 2027 equipment tax change now, not after committee votes. The Utilities Commission rulemaking process, if triggered, would create additional regulatory discretion that is difficult to plan around at the project financing stage.

What We’re Uncertain About?

  • Legislative trajectory: The bill has only cleared its first House reading and sits in the rules committee. Whether it advances, is amended to a narrower form, or stalls entirely is unresolved. The key signal to watch is whether the rules committee schedules a hearing or refers it to a substantive committee with jurisdiction over utilities and energy.

  • Utilities Commission discretion boundaries: The bill grants the Commission authority to raise the 25% on-site generation threshold and mandate special contracts, but provides no ceiling. How that discretion would be exercised in practice — and whether it would apply prospectively to existing facilities — is not defined in the current text.

  • Interaction with federal interconnection rules: The on-site generation requirement operates at the state level, but interconnection of that generation triggers FERC-jurisdictional processes. Whether North Carolina’s certificate of operation timeline would align with federal interconnection queue timelines is not addressed in the bill.

  • Scope of the equipment sales tax repeal: The bill repeals “certain” sales tax exemptions effective 2027, but the precise exemption categories are not fully enumerated in source reporting. The full cost impact depends on which exemptions are captured — a detail requiring review of the bill’s statutory reference language.

One Question to Bring to Your Team

If North Carolina passes a version of this bill — even a narrowed one — and the on-site generation mandate and stranded-cost liability transfer survive, which projects currently in our pipeline cross the 40 MW threshold, and what is the capital cost delta of retrofitting each to 25% on-site clean generation before we can receive a construction certificate?

Sources

  • Smokymountainnews — Data center bill targets rates, water, incentives (Link)

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