backVirginia continues to dominate the global data center market, with Northern Virginia hosting the largest concentration of facilities in the world. In fact, 70% of global internet traffic passes through Virginia’s data centers every day. This growth has fueled economic development, but it has also raised public concerns about energy consumption, water usage, and land use. In response, some politicians are pushing for legislation that could significantly reshape the regulatory landscape for data center development. While the latest legislation did not become law, it is a potential precursor of where data center restrictions could be headed.
A New Era for Data Center Regulation
Gov. Glenn Youngkin has stated that Virginia should remain “the data center capital of the world.” Delegate Shelly Simonds, however, introduced House Bill 2035 (HB-2035) in furtherance of a growing legislative focus on the environmental and infrastructural impacts of the data center boom in Virginia. The bill proposed several key measures:
- Reporting Requirements: Owners or operators of “high-energy facilities” (i.e., 30 MW) would submit quarterly reports to the Department of Environmental Quality (DEQ) as of May 1, 2026, including information on water and energy usage. Thereafter, they would have to notify the DEQ of any “substantial changes” in operations or technology at least 60 days prior to making the change.
- Public Clearinghouse: The DEQ would create a publicly accessible website as of July 1, 2026, to serve as a centralized repository for information on the water and energy usage by such high-energy facilities across the state. To cover the costs of this initiative, the DEQ will charge each owner or operator an initial fee and an annual fee thereafter for as long as the facility remains operational.
- Advisory Group: The DEQ would form and convene a “work group of stakeholders” to further the bill’s initiative and determine whether any additional information should be tracked and maintained in the public clearinghouse. This group must meet at least three times before July 1, 2026, with each meeting open to the public and followed by a public comment period of no less than 60 days.
HB-2035 signals a potential future policy direction. Lawmakers are responding to mounting public pressure and local concerns regarding the cumulative impact of data center clusters on Virginia’s electric grid, water resources, and surrounding communities by proposing bills such as this.
The Upshot of HB-2035
Again, HB-2035 did not become law, but the legislative debate is influencing local permitting decisions and utility planning. Counties and municipalities are closely monitoring these developments and may adopt their own ordinances in anticipation of state-level action. Developers should expect increased scrutiny during zoning and permitting processes, as well as potential delays tied to environmental review requirements. Thus, timing is critical – many developers are racing to secure sites and interconnection agreements to meet surging demand for AI and cloud computing capacity. Any additional regulatory steps may (i) disrupt project timelines, (ii) increase upfront costs, and (iii) affect contractual obligations with hyperscale customers and colocation tenants. Many of the sites that are “low hanging fruit” has already been picked, with remaining options likely to face even stiffer challenges as time goes on.
Potential Risks for Owners & Developers
If HB-2035 or similar measures advance, the implications for data center projects will be significant:
- Extended Timelines: Environmental assessments and water reporting obligations could add months to permitting schedules, creating uncertainty for projects with aggressive delivery timelines.
- Higher Compliance Costs: Meeting new efficiency standards and reporting requirements may require design modifications, additional engineering studies, and ongoing monitoring.
- Siting & Zoning Challenges: Local governments may impose stricter conditions on land use approvals, particularly in areas already experiencing infrastructure strain.
- Operational Constraints: Water use limits or energy efficiency mandates could affect cooling strategies and facility design, especially for high-density workloads such as AI and HPC clusters.
- Contractual Exposure: Delays or cost increases tied to regulatory changes could trigger disputes under construction contracts, power purchase agreements, and customer commitments.
- Privacy Concerns: The information provided to the DEQ for clearinghouse purposes will be subject to public evaluation and will not be granted FOIA protection.
- Security Concerns: Publicly-available information regarding data center locations and capabilities could be considered security risks, requiring additional security protections and requirements.
Though HB-2035 did not pass this session, there is a glaring bipartisan trend toward increased regulation: (i) similar proposals are likely to reappear in future sessions; (ii) local jurisdictions may act independently in the meantime; and (iii) this bill is just one of several aimed at regulating data centers in the state. The industry has grown largely unchecked for the last decade – especially in Virginia – and a more sustainable, forward-looking framework is the growing policy consensus at this time. While a sustainable policy consensus may be growing in Virginia, other states, such as Minnesota and Wisconsin, are seeing bills introduced that restrict data center permitting, water usage, and site options. The next few years will be extremely important for the data center industry, and could result in explosive growth or explosive restrictions.
How King & Spalding Can Help
King & Spalding’s Data Center team has extensive experience guiding clients through complex regulatory environments, particularly in Northern Virginia and the greater Washington, D.C. area. Our team assists developers and owners with compliance strategies, permitting, and risk mitigation to keep projects on track. We also advise on structuring agreements to allocate regulatory risk and connections with policymakers to promote practical, business-friendly solutions. To ensure compliance or discuss how these changes may impact existing or planned projects, please contact King & Spalding’s nationally ranked construction and environmental teams.