South Carolina Senate Special Committee on
South Carolina’s Energy Future
Testimony of Frank Knapp Jr.
President & CEO
South Carolina Small Business Chamber of Commerce
September 12, 2024
Chairmen Massey and Setzler, members of the Committee, I appreciate being allowed to provide testimony to you on this critical issue. I am Frank Knapp, president and CEO of the South Carolina Small Business Chamber of Commerce, which I co-founded 24 years ago to advocate for the general interests of all small businesses.
Fighting to keep utility costs as low as possible for our state’s small businesses is one of our signature successful efforts that no other business organization has undertaken.
Since 2002 either I personally or the Small Business Chamber have intervened in PSC electric or gas rate cases a total of 11 times.
Our experience over the years has found utilities to be consistent in one important way.
Utilities always paint a dire scenario about why they should get their way. The revenue increases, and thus rate hikes, they ask for are always what they say they must have in order to provide safe and reliable energy.
They always ask for far more than they need. But after the PSC makes its ruling approving far less of a revenue increase than sought, the utilities go on to operate just fine.
The utilities carry this same dire warning-strategy into their calls for building massive amounts of new energy generation. Remember when they said that they absolutely had to build two new nuclear plants. Those plants were approved, never built, the consumer is still paying for them and the utility companies and our state’s economy have been doing just fine.
To its credit this committee asked the important questions in your first meeting that identified a major concern with the utilities’ dire warnings of future energy shortfalls and what that would mean for our economy. You heard that the demand for new energy generation is primarily driven by the expected growth in artificial intelligence (AI) data centers in our state. Our utilities are telling us that they anticipate 65%-70% of their future energy production needs will be for data centers.
When Senator Davis asked if there was an economic advantage to South Carolina to have data centers within our state borders, the only response offered was that AI data centers need to be close to the end users.
A little Googling, yes you can do that in Columbia even though we do not have an AI data center anywhere nearby, finds that having a data center within 50 miles does reduce latency, the time it takes for the user to send a command to the data center and receive a response. However, this latency is measured in milliseconds. While reducing latency might be good for some business needs, it is not necessary for most data center services.
TierPoint, a data center company and consulting firm, puts it this way. “Building a solid data center location strategy is about much more than proximity or convenience.”
So back to the question Senator Davis asked. What are the economic advantages to our state to have AI data centers within our borders?
They don’t create many jobs. They are not the next textile industry.
AI data centers don’t seem to be critical to our state’s industrial recruitment. Despite our lack of these data centers our Department of Commerce reports that South Carolina is consistently ranked as one of the top five states to do business in the nation.
The only clear economic benefit of new AI data centers is that they can contribute to local revenue through more property taxes. Local governments are willing to give sweetheart incentives to close the deals. Dorchester County recently gave Google a fixed 4% property tax rate for 53 years to locate a new data center in the county. During those 53 years there will be no reassessment of the value of the property. And the company will pay no property taxes on vehicles, equipment, etc. as all other businesses must do.
The state layered on at least one of its own incentives. Dorchester County got an “economic development rider” from the PSC cutting Google’s new data center’s electricity costs to only 6 cents per kilowatt hour, about 60% below what Dominion Energy residential customers pay.
As mentioned earlier, these incentives produce relatively few jobs. One national study put the cost to state and local governments at about $2 million per data center job. And that was in 2016.
But while new AI data centers might provide some economic benefit to a few local governments, what is in it for the rest of us?
The answer is that the rest of us get to pay for big new gas plants to meet the energy demands of AI data centers. One such power plant we are told will cost over $2 billion just for the construction of the plant. New gas and electric transmission lines and fuel will add much more to the cost. `
These costs today would be socialized to all ratepayers just as the government incentives are socialized to all taxpayers.
And there is the problem.
Amazon, Google, Meta and the other giant tech companies want more AI data centers so they can sell more services and make higher profits. For example, Microsoft’s AI cloud computing business income generated $1 billion in revenue in just three months.
Our state’s investor-owned utilities want to build more energy generation for new data centers because building things is the way they really make more profit for their companies.
Everybody makes a lot of money by building more AI data centers and energy generation except the consumers—residential, small businesses, medium businesses and large businesses. They are forced to pay higher utility bills. That simply isn’t fair.
So, let’s solve this problem.
Since South Carolina taxpayers and ratepayers don’t really benefit from AI data centers, the legislature needs to protect them from the cost of government incentives, the costs of new energy generation for AI data centers, and the risk of building energy generation to meet anticipated AI data center needs that do not materialize.
- Let’s protect taxpayers by prohibiting the state and political subdivisions from using any funds for incentives for new or expanded AI data centers.
- Let’s protect ratepayers by prohibiting the PSC from approving any provision to reduce electric rates for AI data centers.
- Let’s protect ratepayers by requiring all new and expanded AI data centers to self-produce a minimum of 50% of their energy and capacity needs with clean energy like solar and battery storage.
- Let’s protect ratepayers by prohibiting the PSC from socializing any AI data center related utility costs to other consumer groups. There must be no cost-shifting.
Put these protections into law, and AI data centers will be welcome in our state.
I would be happy to answer any questions.
Thank you.