Data centers are proliferating across the United States—and across the legislative and regulatory agendas of state and local governments. In 2025, there were more than 200 bills introduced across all 50 states aimed at regulating in-state data centers, which are the backbone of the ongoing artificial intelligence (AI) boom, and more than 40 of those bills were enacted into law.1 This legislation spans the policy gamut, addressing energy procurement and pricing, water usage, environmental considerations, siting issues, labor standards, national-security concerns, and more. We expect these efforts to continue to escalate in 2026, driven in part by the current absence of federal regulatory oversight (which we discussed in detail in a recent client alert) and possibly accelerated by reports of potential imminent action by the federal executive branch. As more of these bills become actual state laws, we anticipate some of these state measures will face important and novel legal challenges, the prospects of which will ultimately hinge on the specific facts at issue. However, general trends in state efforts at regulating data centers provide some initial insight into how the legal landscape may develop. Because of data centers’ pivotal role in the advancement of AI, how these trends unfold may have a significant impact on clients operating within AI and AI-adjacent industries.
Below, we identify bellwether examples of states and localities2 taking aim at aspects of data-center operations within their jurisdictions. We also offer some preliminary thoughts on potential legal issues raised by these laws, especially those that impose targeted burdens on data centers.
I. Key Trends in State Regulation of Data Centers
An initial survey reflects that while many states see opportunities in the data-center boom, they also are considering regulating data centers in an increasing array of ways, directed at perceived externalities created by data-center growth.
Energy Use3
A growing number of state-law proposals would impose upon large‑load customers—often expressly including data centers—distinct rate classes or special tariffs designed to recover electricity and infrastructure costs and to relieve rate pressure on individuals and businesses. For instance, lawmakers in California have proposed legislation directing the state’s Public Utilities Commission to, among other things, create a special tariff for large-load customers, including data centers, with demand of more than 75 megawatts.4 While many typical data centers will have an energy demand below this threshold, larger operations (such as those of hyperscalers) are likely to be affected. Other states have gone further in already enacting comparable legislation, including Texas5 and Minnesota.6
Governors, too, are weighing in. In New York, for instance, Governor Kathy Hochul recently proposed requiring large-load projects “without exceptional job creation or other benefits” to more fully cover the costs associated with interconnection and grid upgrades, or alternatively to generate their own power.7 In Florida, Governor Ron DeSantis announced a similar effort to shift costs from retail consumers to large-load customers by preventing utility companies from charging residents more for energy costs driven by data-center development.8
Relatedly, states are turning their attention to grid reliability. Texas, for example, recently enacted requirements that large energy users (including data centers) be capable of shedding load during grid emergencies.9 The law also authorizes compensation for such competitively procured demand reductions.
Notably, and relevant to several possible legal challenges discussed below, stakeholders dispute whether data centers are meaningfully driving rate increases. While there is consensus that utility prices are on the rise, one industry‑funded analysis found large data centers may actually cover their full costs of service and may even create downward rate pressure.10 Proponents of this view may argue that rate increases are being driven not by the proliferation of data centers but by, among other things, carbon-related regulation that drives higher costs and therefore rates.
Water Use
States are also turning their attention to disclosure and cost‑recovery mechanisms for water use, particularly in drought‑exposed jurisdictions. Florida’s and Arizona’s governors, for example, have proposed mandating that water consumption by data centers not diminish public access and that large facilities pay higher water rates for perceived high usage.11 Other states are choosing to address the issue via new disclosure and reporting obligations. Minnesota’s new law, for instance, requires data centers to report estimated water usage and anticipated sources.12 A recent California bill imposing water‑use reporting was vetoed by Governor Gavin Newsom, signaling political disagreements as to the appropriateness of this measure.13
Environmental Measures
States are also experimenting with direct and indirect environmental levers to influence the operations of data centers. Legislation introduced in New Jersey would require new data centers to rely entirely on newly built clean or nuclear power, though the law’s requirements are triggered only once regional peers take similar steps.14 Proposed New York legislation would phase in renewable power purchase agreements specifically for data centers (33% by 2030, 66% by 2035, and 100% by 2040) and impose environmental reporting requirements.15 Noise and pollution levels have also been the subject of recent data-center-governance debates.16
Zoning and Siting Regulations
States are also increasingly looking to siting and zoning restrictions as a means of regulating data centers. Last summer, for example, Maryland’s Frederick County imposed a six‑month moratorium on new data centers and followed with a zoning map constraining eligible sites.17 Baltimore County recently instituted a similar pause, freezing development of data centers until a study is complete or until 2027 at the latest.18 Arizona municipalities are also weighing zoning restrictions as a means to limit where data centers may be located—in that case, due to water stresses.19 And a proposal from Florida’s governor would expressly empower local governments to prohibit construction of data centers.20
Security Concerns
Finally, some states are seeking to justify limits on data centers by invoking security-related concerns. At least one prominent proposal in Florida would bar approval of data centers controlled by foreign entities.21 Other states, including Arkansas, have adopted similar measures for related industries like cryptocurrency operations, which may signal future efforts aimed at data centers.22
II. Plausible Legal Challenges That May Emerge
Given the critical role data centers play in the growth of AI, it is a sure bet that state attempts to target data centers with uniquely burdensome regulation will give rise to legal disputes and, in due course, litigation. These legal challenges will likely take a variety of approaches that have varying levels of novelty, creativity, and likelihood of success, and will expose legal complexities with some state laws along the way. Whatever the outcome of these lawsuits, litigation could generate uncertainty about data-center siting as well as state efforts to regulate data centers. This will therefore be an important area to watch in 2026.
Challenges to Utility-Rate Differentials
As states continue to push for data centers to assume a higher financial burden because of the resources data centers consume—such as energy and water—via either rate increases or other pass-through costs, growing price disparities may give rise to legal challenges under a diverse set of theories.
Equal Protection Clause. Some challengers may try to bring claims under the U.S. Constitution’s Equal Protection Clause or under state-law analogues. Courts typically uphold customer‑class distinctions in the face of equal protection challenges so long as there is a rational basis for the design of those distinctions.23 State-imposed differentials on the basis of cost‑of‑service and demand characteristics would likely suffice for courts to uphold such laws under this case law, and indeed rate design already routinely differs across residential, commercial, and industrial classes.24 However, in certain situations, including evidence of irrationality in rate structure, equal protection challenges to tariff schemes may provide a narrow path forward for those resisting such state laws.
Federal Power Act (FPA). For utilities within the ambit of the Federal Energy Regulatory Commission (FERC), challengers may argue that data-center premiums are “unduly discriminatory” or not “just and reasonable” and are therefore a violation of the FPA.25 The FPA demands that rates be designed, to the maximum extent practicable, to reflect actual costs to each class and, moreover, authorizes recovery on that basis.26 If a challenger can show that utility charges are demonstrably untethered to cost recovery, that challenger would likely be able to gain traction in litigation. Alternatively, if the evidence suggests that large-load customers do in fact drive increases in energy costs or infrastructure upgrades that are not otherwise recovered, rate differentials or pass-through costs are likely to be viewed by courts as permissible. Outcomes here are likely to turn in significant part on the availability and strength of empirical data supporting relevant state laws.
Dormant Commerce Clause. Dormant Commerce Clause challenges could frame data‑center‑specific surcharges or siting prohibitions as imposing a significant burden on the interstate market, especially in the case of a state that obtains a substantial portion of its electricity from other states. While facially discriminatory actions are rare, challengers could plausibly bring balancing claims, arguing that cumulative out-of-state burdens (e.g., deterring national infrastructure build‑out) significantly outweigh marginal local benefits (e.g., cost-shifts for residents).27 Showing a substantial interstate burden and minimal local gain is likely a fact‑heavy and difficult undertaking. Nonetheless, in some cases litigants may still press the argument, especially to supplement other claims put forward in a legal challenge.
Express Preemption Under the Telecommunications Act of 1996
A provision of the Telecommunications Act prohibits states from creating barriers to entry for telecommunications services—defined as the transmission of unchanged information.28 Some challengers may argue that at least certain data centers—particularly “carrier hotel” facilities that primarily offer connectivity and unchanged transmission—fit the statute’s definition of providing telecommunications services and thus trigger the Act’s prohibition of measures that “materially inhibit” the ability to provide such services.29 One key question about this approach would be whether data centers—which often provide capabilities for storing, processing, and transforming information—are characteristically more aligned with the Act’s definition of “information services” and thus fall outside the statute’s scope. Some challengers may try to argue that data centers provide both telecommunications and information services, to defend against burdensome regulation.
In fact, the FCC is actively exploring a similar theory through a notice of proposed rulemaking, soliciting comments on whether the Act may be used to challenge state regulation of AI. Last year, FCC Chairman Brendan Carr noted that Section 253 of the Telecommunications Act allows the FCC to “preempt various state or local regulations that effectively prohibit the provision of telecom services” and further stated that there “may be a portion of AI services that may be too heavily regulated at the state and local level” such that the FCC may challenge them.30 Elsewhere, Chairman Carr noted that the law “expressly prohibits state and local regulations that effectively prohibit infrastructure builds,” potentially indicating the types of regulations that the FCC may be interested in challenging.31
The application of Section 253 of the Telecommunications Act to data-center laws presents an array of legal issues that could well be addressed by the FCC and litigated in challenges to state laws in 2026.
Other Federal Preemption Challenges
General federal preemption principles beyond Section 253 of the Telecommunications Act may offer some litigants a path for challenging certain state laws. While states control retail-rate design and local siting, the FPA vests FERC with exclusive authority over wholesale sales and market rules. If a state regulation were to effectively act to change pricing in a regional wholesale market, given the dynamics of that market, that regulation may be vulnerable, even if the measure was framed as a retail measure. For instance, in Hughes v. Talen Energy, the Supreme Court held that certain state actions were federally preempted because they effectively overrode federal decisions by giving an in-state utility company payments on top of those established through FERC-governed wholesale electricity auctions.32 Evidence that state requirements targeting data centers reshape the interstate wholesale market for electricity may provide fodder for similar challenges.
Water, environmental, and labor measures imposed by states may also be subject to preemption challenges depending on the precise interplay between the state actions and federal statutes (e.g., Clean Water Act or federal labor laws).
Moreover, proposals that bar foreign-owned or foreign‑controlled data centers raise obvious field preemption questions, as courts generally find the conduct of foreign relations to be the federal government’s exclusive domain, even absent an on‑point federal statute.33
First Amendment Challenges
The First Amendment may offer a conceivable, if creative, route for mounting challenges to state laws regulating data centers. Some litigants may try, in particular, to analogize data centers to cable operators like those in Los Angeles v. Preferred Communications, where the Supreme Court found that the regulation of cable companies “plainly implicate[s] First Amendment interests” and noted a plausible basis for a First Amendment violation in a city’s denial of utility-pole access by a cable company.34 Challengers may argue by analogy that siting bans or exclusionary policies aimed at data centers burden protected speech by restricting access to the infrastructure through which expressive activity, conceivably such as user-generated prompts to AI chatbots or even those chatbots’ responses, flows.
Takings Clause and Contract Clause Challenges
Finally, in extreme cases, challenges may be brought under the Constitution’s Takings Clause or Contract Clause (and under state-law analogues to either clause). Such challenges are most likely to occur where new laws are applied to existing data centers. For instance, challengers may assert that new permit conditions constitute unconstitutional exactions lacking an essential nexus and rough proportionality to project impacts under the Takings Clause.35 Relatedly, if a state action substantially impairs existing public or private contracts, challengers may invoke the Contract Clause. In such cases, courts will weigh the public interest and the reasonableness of the interference; even impairments of the state’s own contracts are susceptible to judicial scrutiny.36 Both sets of challenges will likely require extraordinary facts (for instance, an outright ban on existing data centers) for challengers to prevail.
Conclusion
State and local attention to data centers is intensifying across many domains. Proposals are still taking shape, and, especially with the possibility of federal government action, it is too soon to predict precisely how the patchwork of state legislation will evolve. However, as the body of state laws and regulations grows, litigation will inevitably follow. The strength of any particular legal challenge will hinge on the specific facts and statutory details at issue.
To navigate this rapidly evolving domain, businesses in data-center, AI, or adjacent industries must closely monitor the evolving legislative landscape. WilmerHale’s attorneys regularly advise such companies on developments at the state and federal levels. With a depth of AI expertise and experience across the firm’s practice areas, including its regulatory, litigation, and transactional departments, WilmerHale is well placed to help companies of all types understand and navigate this area.
