Governor Hochul Signs First Statewide Data Center Moratorium in the U.S.

In a move with significant implications for data center developers and potential host communities throughout New York, Governor Kathy Hochul has signed Executive Order No. 62, temporarily pausing certain state environmental approvals for large-scale data center projects while state agencies evaluate the industry's environmental, energy, and infrastructure impacts. This makes New York the first state in the country with a statewide data center permitting moratorium. The Order applies to data centers that consume 50 megawatts (“MW”) of energy or more and comes just one month after a similar moratorium was passed by the State Legislature.

Background & Legislative Action

The rapid growth of artificial intelligence (“AI”), cloud computing, streaming services, and other emerging technologies in recent years has prompted the wide-scale development of data center facilities that house data storage and processing capacities. As more data centers have been built, community concerns over their water use, energy consumption, and other impacts have grown louder.

In response, legislators in New York recently passed the Responsible Data Center Development Act (S10642/A11560), which would have established a one-year state permitting pause on data centers that consume 20 MW of energy or more. The Act also includes robust public hearing requirements, directs the Department of Environmental Conservation (“DEC”) to prepare an environmental impact report on data center development, tasks the Public Service Commission (“PSC”) with establishing new electric and water rate classes for large-scale data centers, and sets renewable energy and energy efficiency targets for covered facilities.

Instead of acting on the Responsible Data Center Development Act, Governor Hochul issued Executive Order No. 62, which went into effect on Tuesday, July 14. In light of the issuance of the Order, it is likely that Governor Hochul will veto the Act by the end of the year. By taking this action, Governor Hochul appears to be trying to strike a balance between supporting data center development in the future and addressing the environmental and energy concerns that constituents have raised.

GEIS & Permitting Moratorium

The Order directs the Department of Public Service (“DPS”) to produce a Generic Environmental Impact Statement (“GEIS”) that examines the environmental, energy, infrastructure, and community impacts of data center construction in New York State. Pursuant to the State Environmental Quality Review Act (“SEQRA”), DPS must hold a formal public hearing and accept comments from interested parties. Until DPS submits the final GEIS and associated findings statement, DEC is directed to hold in abeyance discretionary permits, approvals, licenses, and similar authorizations for covered data center projects whose applications were not determined to be complete before the executive order became effective.

Exceptions to the Moratorium

The moratorium does not apply to data centers that consume less than 50 MW of energy (a significant increase from 20 MW that was in the proposed Responsible Data Center Development Act), those with applications that have been determined to be complete by DEC before the effective date of the Order, or projects that do not require discretionary DEC approvals. By pausing only discretionary approvals, the Order provides a potentially significant path forward for future projects that seek ministerial DEC permitting decisions, such as registrations or coverage under existing SPDES General Permits. Facilities primarily used for manufacturing, research (defined broadly), education, or medical care are likewise excluded. Furthermore, the Order does not extend to permits, approvals, or licenses issued by local governments in New York.

Regulatory Directives

In addition to pausing certain data center approvals, the Order instructs both DPS and DEC to evaluate whether additional regulations and guidance are warranted. Within sixty days, DPS must convene a Data Center Interconnection Working Group to identify and address interconnection issues related to large electric loads, including cost allocation. Ninety days thereafter, DPS is required to report its findings to the PSC, which may then consider new service classifications and requirements applicable to data centers.

DEC, on the other hand, is tasked with assessing whether any new or amended regulations, policies, reporting requirements, or guidance are necessary or appropriate to ensure its water withdrawal program adequately addresses the demands of large water users, including data centers. Within twelve months of the Order, DEC must submit a report to the State detailing its findings and recommendations.

Additional Programs

The Governor’s Order also establishes two new initiatives: the Community Investment Framework (“CIF”) and the New York Grid Acceleration Fund (“NYGAF”). CIF is to be created by Empire State Development (“ESD”) to help localities analyze and maximize the economic benefits of data center development while mitigating potential adverse impacts. The framework will include guidance related to community benefits, infrastructure investments, fair labor standards, and data center transparency.

NYGAF, which will be overseen by DPS, is intended to evaluate mechanisms through which large-load customers, including data centers, could contribute to grid improvements, renewable energy development, and demand response programs. DPS will assess how such contributions could be structured and how funds could be allocated, with a goal of minimizing impacts to ratepayers and small-load customers.

Key Takeaways

The Executive Order is now in effect. Covered data center projects that do not qualify for one of the exceptions above will be unable to obtain discretionary DEC approvals until DPS completes the GEIS process. While state discretionary approvals are paused, developers may nonetheless continue to apply for and receive ministerial permits as well as project approvals from local entities that have not enacted their own moratoria. These approvals, however, may be difficult to obtain based on the uncertainty with respect to potential future requirements tied to the conclusions reached by the GEIS. Developers pursuing new large-scale data center projects in New York should reassess permitting strategies, project timelines, and approval pathways to determine whether the Order could affect project viability or sequencing.

The Executive Order is also notable because it signals the beginning – not the end – of a broader regulatory initiative focused on large-load data centers. Through the GEIS process, DPS interconnection proceedings, PSC review, and DEC's water withdrawal assessment, New York appears poised to consider new requirements governing grid interconnection, cost allocation, energy procurement, water use, and community benefits. Stakeholders should closely monitor these proceedings, as the regulatory framework that ultimately emerges may have a greater long-term impact on data center development in New York than the temporary permitting pause itself.

How We Can Help

The Hodgson Russ Data Center & Digital Infrastructure Team is actively advising clients on the implications of this Order, including the status of pending DEC applications, project planning, and other regulatory developments. Please contact Thomas Berkman, Jenna Rackerby or another member of the team to discuss how this Order impacts your projects and operations.

Disclaimer:

This client alert is a form of attorney advertising. Hodgson Russ LLP provides this information as a service to its clients and other readers for educational purposes only. Nothing in this client alert should be construed as, or relied upon, as legal advice or as creating a lawyer-client relationship.