Data Center Reform: Virginia’s SB 94 Limits Data Center Siting to Industrial Zones

In early 2026, Virginia State Senator Danica Roem unveiled SB 94, marking a significant turn in how the state regulates large-scale data centers. For years, Virginia has built a reputation as a top destination for cloud providers and tech giants—especially in the Loudoun County region known as “Data Center Alley.” That boom owes to high-voltage transmission lines, competitive tax incentives and close proximity to major fiber routes. Yet as server farms multiplied, so did questions about land use, resource strain and who ultimately foots the bill.

Historical Context: A Data Center Powerhouse

Back in the early 2000s, Virginia’s push to modernize the grid and attract IT companies laid the groundwork for the data center surge. Local governments offered municipal tax breaks and streamlined approvals—often side-stepping thorough environmental reviews. By the 2010s, Loudoun County alone housed millions of square feet of data center space, drawing workforce talent and boosting local tax revenues.

As the industry matured, residents and advocates began calling for safeguards. In multiple utility rate cases, Dominion Energy proposed major transmission and substation upgrades. The Piedmont Environmental Council (PEC) intervened, arguing that data center operators should bear a fair share of those costs. Those early interventions laid the foundation for what evolved into the Virginia Data Center Reform Coalition, a group uniting environmental organizations, consumer advocates and local planners.

Emerging Strains: AI Demands and Resource Use

The rise of AI has accelerated energy and water demands beyond anything seen a decade ago. AI training workloads can tie up entire server farms for weeks, consuming continuous power at scales measured in hundreds of megawatts. Cooling those racks typically involves water-cooled chillers which, while efficient, draw significant volumes—sometimes millions of gallons annually.

Although precise Virginia figures aren’t in the public domain, experts agree that the combination of high-density computing and water cooling creates a nexus of utility, environmental and community concerns. When data centers ramp down, they sometimes participate in demand response programs that pay them to shed load, but that practice can simply shift power generation to on-site gas turbines rather than driving grid modernization.

Key Provisions of SB 94

SB 94 seeks to manage those challenges by confining new hyperscale data center developments to areas specifically designated for industrial use. The bill would:

• Limit all new data center construction to land zoned for industrial use. This measure prevents large facilities from encroaching on farmland, retail zones or residential neighborhoods.
• Set size and electrical load thresholds to identify which projects fall under the siting restriction. By focusing on hyperscale builds, the bill avoids unduly hampering smaller IT facilities.
• Mandate coordination with the State Corporation Commission for proposals exceeding key thresholds. That oversight aims to ensure utility infrastructure can safely and reliably serve both the project and surrounding communities.

According to the Virginia Legislative Information System, these provisions apply prospectively, so existing data centers aren’t retroactively affected. Senator Roem has emphasized that SB 94 is about guiding future growth—allowing industry and communities to plan in concert rather than react to unchecked expansion.

Four Pillars of Coalition Reform

The Virginia Data Center Reform Coalition has coalesced around four core objectives designed to address interlocking issues of infrastructure, fairness and transparency:

1. State Oversight: Empower the State Corporation Commission to review large data center applications. This would create a single state-level authority to assess grid capacity, environmental impact and alignment with broader energy policy.
2. Ratepayer Protection: Shield residential and small-business customers from footing the bill for utility upgrades driven by data center demand. PEC’s past interventions in utility rate cases underscore the risk of cost shifts without explicit safeguards.
3. Enhanced Transparency: Require developers to publicly disclose projected electricity and water usage, planned backup generation capacity, and mitigation strategies. Making that data available early in zoning and permitting processes gives local leaders and residents meaningful insight.
4. Impact Mitigation: Oblige operators to propose on-site measures—like renewable energy arrays, water recycling systems or noise barriers—to minimize the footprint on surrounding neighborhoods and ecosystems.

Economic and Fiscal Considerations

Data centers often tout millions in capital investment and promise job creation, but far less visible are the infrastructure costs they trigger. Upgrading substations, reinforcing transmission lines and expanding water treatment facilities can run into the tens or hundreds of millions. Under current regulations, utilities may recover those expenses across their entire customer base, meaning homeowners and small businesses can end up subsidizing industrial growth.

The coalition argues for more equitable cost-allocation frameworks so that operators contribute directly to the system improvements they necessitate. If a new facility requires a dedicated substation, its owners would help cover the design, land acquisition and construction—just as other large industrial users do in different sectors.

Community and Environmental Impacts

Beyond the balance sheet, data centers carry palpable effects on land, water and air:

• Land Use: Industrial-scale buildings and surrounding infrastructure can clash with community character, affecting property values and local aesthetics.
• Water Resources: Closed-loop cooling systems, while more efficient than older designs, still require substantial make-up water—especially in summer months.
• Air Quality: Backup generators—commonly diesel or gas turbines—run regular tests and can fire up during grid disruptions. PEC has expressed concern that demand response incentives may lead to greater on-site generation rather than grid upgrades.
• Grid Reliability: Concentrated loads at hyperscale sites place new strains on distribution networks, risking brownouts or voltage fluctuations without proper planning.

Stakeholder Perspectives

Local governments often welcome the tax revenues and employment opportunities data centers bring, though some planning directors now cite noise complaints and heavy truck traffic as growing issues. Consumer advocates worry that subsidizing utility infrastructure amounts to a hidden tax on households. On the other side, data center operators caution that rigid zoning could impede site selection, latency performance and network redundancy. Senator Roem counters that industrial parks can offer robust connectivity without compromising residential life.

How Virginia Compares

States from Arizona to New Jersey are watching Virginia’s experiment. In Phoenix, legislators have floated energy surcharges for hyperscale data centers, while suburbs around Boston have negotiated community benefit agreements in exchange for local approvals. Virginia’s comprehensive approach—zoning limits, ratepayer protections, transparency requirements and mandated mitigation—could emerge as a national model if it withstands legal and political scrutiny.

Technical Note: On-site Gas Turbines

Many modern data centers incorporate on-site gas turbines as backup power sources. Under certain demand response programs, operators earn credits by disconnecting from the grid during peak hours and relying on their turbines. PEC warns that this incentive structure may inadvertently encourage more testing or use of generators, potentially increasing emissions and delaying investments in grid resiliency.

Beyond SB 94: Related Legislation

SB 94 is part of a broader legislative agenda that includes:

• SB 93: Adjusts tax rules for financial-sector servers housed in data centers, potentially affecting local revenue streams.
• SB 334: Calls for detailed environmental impact disclosures—water use projections, emissions estimates and waste heat management—during public hearings.

These companion bills underscore lawmakers’ intent to bring multiple dimensions of data center policy under tighter scrutiny this session.

Looking Ahead: Implications and Next Steps

As SB 94 advances through the General Assembly, key questions remain: Will the State Corporation Commission possess adequate enforcement power? Can transparency mandates truly inform community decisions? And might data center firms pre-empt further regulation by investing in renewable energy or water recycling technologies?

What plays out in Richmond this spring could shape data center policy far beyond Virginia. We’ll be watching committee debates, expert testimony and potential amendments as stakeholders seek a middle ground—one that sustains economic growth while safeguarding communities and environment.