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Connecticut Local Officials Hesitant Over Data Centers

Efforts to improve Connecticut's position as a potential host for data centers appear to be stuck in neutral at the moment, despite an increased focus on artificial intelligence and how the two are intertwined.

(TNS) — Efforts to improve Connecticut's position as a potential host for data centers appear to be stuck in neutral at the moment, despite an increased focus on artificial intelligence and how the two are intertwined.

Depending upon the information source, Connecticut currently has between 16 and 19 data centers. In order to boost data center activity in the state, Connecticut officials enacted a law in 2021 to provide incentives for the developers of the facilities.

But to date, only one company — Cigna — has taken advantage of the incentives, according to Jim Watson, a spokesman for the Department of Economic and Community Development.

The incentive agreements are for either 20- or 30-year terms, depending on size and location of the data center. The incentives include sales and use tax exemptions for goods and services purchased by the data center, property tax exemptions and exemption from any future financial transactions taxes. To qualify for the 20-year term of incentives, data centers must make a qualified investment in the site of $50 million if the site is in an opportunity zone or $200 million if it is not. For a 30-year term, the investment must be $200 million in an opportunity zone and $400 million elsewhere.

Fred Carstensen, who is a professor at the University of Connecticut School of Business and the director of the state Center for Economic Analysis, is troubled by the lack of emphasis state officials have on data centers.

"We don't have a cohesive strategy for this (data centers)," Carstensen said. "Connecticut was the most important state in the industrial revolution. But we've lost our mojo."

A good start at fixing that problem, he said, could start with strong state support for a 1.2 million square foot data center that is being proposed adjacent to the Millstone nuclear power plant in Waterford. The developer of the data center project, New England Edge, and Millstone owner Dominion Energy have signed a host fee agreement with the town, promising to pay a fee of $231 million over 30 years in lieu of property taxes.

But since the host agreement was signed in March 2023, the progression toward making the data center a reality has slowed. The data center developer has not yet to submitted plans for the facility to Waterford officials for review, according to Jonathan Mullen, the town's planning director.

The company also needs approval from the Connecticut Siting Council. The Siting Council decided earlier this year that it was premature to issue a ruling decline to issue a ruling on any potential effects of the project on the environment and the provision of "adequate and reliable public utility services" from the power plant.

Once completed, the data center would create 200 permanent technology jobs, New England Edge officials have testified to lawmaker.

Carstensen said the New England Edge data center is something "the governor ought to be pushing very hard for."

In addition to the permanent technology jobs the data center would create, he said another benefit is the consistent revenue stream that a power supply deal with New England Edge would given Millstone and Dominion. That's important because the continued operation of the nuclear plant is considered a critical element of the state's goals to reduce carbon emissions.

Carstensen said officials in Massachusetts have taken a much more aggressive approach toward data centers, Massachusetts Gov. Kerry Healey put $100 million in a fund to create an AI hub in that state, he said.

But Connecticut Gov. Ned Lamont announced in late May that the state was committing $100 million over the next five years with the goal of matching private dollars to build out the state's tech sector with project funding.

State Sen. Norman Needleman, D-Essex, co-chairman of the Energy and Technology Committee, is among those state officials who are concerned about the impact that a power-intensive data center located adjacent to Millstone would have on Connecticut's energy security.

At one point during the legislative session held earlier this year, legislative committees were considering a bill that would have authorized a study on the impact that the New England Edge data center and any others that might follow would have on the region's electric grid, Needleman said. But the legislation authorizing the study failed to advance to a vote by the full General Assembly, he said.

Needleman said he is cognizant of the impact the Waterford data center project could have on Connecticut's economy.

"I'm all for the economic benefits, but not at the expense of the (electric) grid," he said. "We certainly don't want to lose (electric generating) capacity at Millstone."

To date, the operator of the regional electric grid, ISO-New England, has not taken a position on New England Edge's plans in Connecticut.

"The developer has not put forward a formal proposal to the ISO, and as such no project study has been initiated," said Mary Cate Colapietro, a spokeswoman for the grid operator. " If and when the developer submits a formal proposal, the ISO would then conduct a study of the project. The exact nature of that study would depend on a variety of items that are unclear at this time, including exactly how the project could connect to the grid, the demand flexibility, and whether additional generation and/or storage would be part of the project."

Daniel O'Keefe, commissioner of the Department of Economic and Community Development, told lawmakers during a legislative hearing in March that the time to act is now because "it is in the states and communities where these data centers are ultimately built that the greatest economic benefits will accrue."

"We need that to happen here, in Connecticut and there is a limited window of opportunity in which to act," O'Keefe told lawmakers.

Connecticut is not the only place where technology companies are looking to locate data centers near nuclear plants.

Amazon Web Services announced plans in March for a $650 million data center campus next to the Susquehanna Steam Electric Station, a nuclear power plant located in central Pennsylvania.

"DECD recommends that instead of studying the impact of data centers on the grid, the state instead study ways to support data centers on our grid to leverage the greatest economic benefit they enable," O'Keefe said. State-of-the art computing power is especially critical to the financial service sector, which is one of Connecticut main engines for economic growth, he said.

The amount of data center capacity that is under construction in primary markets around the country so far this year has increased by 46 percent over the first half of 2023, according to a report recently released by Trepp, a New York City-based data and analysis firm. But demand remains greater than supply, according to Trepp officials, with lessees of data centers now often pre-leasing space 18 to 36 months in advance, an increase over the previous norm of 6 to 12 months.

Despite the increase in data center construction, vacancy rates have fallen to record lows in some major markets.

While new data activity is becoming quite brisk, a project to create a data center at a former Stanley Works factory in New Britain that broke ground in July 2018 is still nowhere near completion, according to city officials.

"Connecticut's competitive advantage is our highly skilled workforce, working on the forefront of research and development and technological innovation," O'Keefe said. "We can not afford to have them built first elsewhere, as these new computing technologies are important for our economic future."

© 2024 The Middletown Press, Conn. Distributed by Tribune Content Agency, LLC.