Virginia Taxes the Kilowatt-Hour: The Who Pays Question Gets Its First Hard Answers
By Keith Reynolds | Publisher & Editor, ChargedUp!
New Jersey and California Move the Same Week
New Jersey lawmakers passed S731, directing the Board of Public Utilities to establish a dedicated tariff for data centers of 50 megawatts or more. The bill applies to both existing and new facilities, a broader reach than the version pocket-vetoed by the previous governor, and it now heads to Governor Mikie Sherrill, whose office helped draft it. Following the pattern set in Trenton, California's proceeding carries even larger stakes. Pacific Gas and Electric (PG&E) has proposed the state's first investor-owned utility large-load tariff, and ratepayer advocates at The Utility Reform Network and the California Public Advocates Office are contesting how it allocates stranded-asset risk. If projected data center demand fails to materialize, someone owns the infrastructure built for it; the California docket will decide whether that someone is the developer, the utility, or the ratepayer.
Florida shows how the terms settle in practice. Florida Power and Light's rate case settlement would require data centers to pay a minimum bill covering 70 percent of expected energy costs, down from the utility's original 90 percent proposal, with the governor publicly siding against subsidies flowing from households to large loads. The common architecture across these dockets now includes minimum contract terms, load ramp schedules, exit fees, and financial security requirements, the same covenant structure a lender would recognize from any credit agreement.
The Property-Level Math
For data center owners and their tenants, the tariff wave converts a soft political risk into a hard operating expense. Virginia's tax alone adds roughly $9.6 million in annual cost to a 100-megawatt facility running at full load, a figure that flows straight through NOI before a single lease escalation clause responds. Underwriting a hyperscale asset now requires jurisdiction-level tariff diligence with the same rigor applied to entitlements and title.
For owners of everything else, the wave runs the other direction, and it runs favorably. Large-load tariffs exist to stop data center infrastructure costs from seeping into the rates paid by offices, multifamily, retail, and industrial assets. Where they work, they protect the utility expense line across an entire portfolio. Where they fail or lag, the exposure is measurable: retail electricity prices have risen 42 percent since 2019, and PJM capacity prices have climbed roughly tenfold, cost pressure that compresses NOI in energy-intensive buildings where power represents as much as a third of operating expense. Every rate case on the current docket map is, in effect, a proceeding about someone's cap rate.
The Distributed Hedge
The tariff wave strengthens the case for onsite generation from both sides. Data centers facing consumption taxes and minimum bills gain a direct return from behind-the-meter solar, storage, and generation that reduces taxable and billable grid draw. Neighboring commercial owners gain a hedge against whatever cost allocation the dockets ultimately fail to contain. A building that produces and stores a share of its own power has partially opted out of the argument, which is the quiet logic behind commercial solar setting an annual record of 2,118 megawatts installed and behind-the-meter storage growing fivefold since 2020. Rate design uncertainty is itself a cost, and distributed energy is the instrument that prices it.
What to Watch
Three dockets will define the next quarter. Governor Sherrill's signature on S731 starts New Jersey's rulemaking clock. The California Public Utilities Commission's handling of PG&E's stranded-cost provisions will set the template for the largest state economy. And Virginia's revenue collections, visible in quarterly state reports, will tell every other data center state exactly what a kilowatt-hour tax yields. Expect imitators.
Sources
https://www.datacenterknowledge.com/data-center-construction/new-data-center-developments-july-2026
https://legal-planet.org/2026/06/29/a-tariff-on-data-centers-could-help-them-pay-their-fair-share/
