Our laws must catch up to data centers’ rising power

Data center power demand could bring about a transformation in the U.S. energy system, or it could spike prices as polluting emissions rise, write energy scholars Alexandra Klass and Dave Owen.

Nov. 7, 2025

By Alexandra Klass and Dave Owen

Alexandra Klass is the James G. Degnan Professor of Law at Michigan Law, and Dave Owen is the Albert Abramson ’54 Distinguished Professor of Law at UC Law San Francisco.

The United States faces massive growth in electricity demand. If utilities’ projections are right, data centers will drive much of that growth. And if utilities try to meet that demand in traditional ways, the results could be bad for consumers, the environment and the tech industry.

Those traditional ways assume that utilities must meet the needs of electricity customers at all times. This requires utilities to build new power plants and transmission and distribution lines and (in most states) pass those costs, plus a profit margin, on to consumers. Utilities also will not allow major new users to connect to the grid until those users’ needs can be met.

These principles are a poor fit for the present moment. Building new power plants and transmission lines has become increasingly difficult. If data centers must wait until that infrastructure is fully built, they may wait for years. Worse, utilities and government officials are citing the potential data-center boom as a reason to extend the life of old, expensive, and heavily polluting coal plants or to build new gas plants. If they do so, and if they pass those costs on to consumers, retail electricity prices and pollution will rise.

And if current demand projections turn out to be overestimates — which has happened during past tech booms — consumers will pay for new power plants that never needed to be built.

But this unfortunate scenario is not inevitable. We are scholars of energy, natural resources, and environmental law, and in a paper we explore a better way of meeting this moment. Our inspiration comes from legal systems for allocating water, particularly in the American West, and natural gas. For both resources, intermittent scarcity has often been assumed, and legal systems evolved to manage shortages. These systems provide instructive models for electricity.

Allocation systems for water and natural gas have a few key elements. First, they generally allow new users to connect to the system even if supplies won’t always meet those users’ demand. Second, resource managers can curtail users’ access in times of shortage. And third, importantly, these systems allow and encourage users to find innovative ways to insure against uncertainty.