Resource demands of Midwest data centers draw critics

As 852 people crowded into a Dec. 3 video hearing of the Michigan Public Service Commission, Gov. Gretchen Whitmer’s office sent out a press release.

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“Whitmer Submits Public Comment in Support of Stargate Project,” it began, a reference to the hearing’s topic: a contract to supply power to a sprawling data center planned by OpenAI, Oracle and Related Digital in Saline Township, nine miles south of Ann Arbor.

Michigan’s attorney general, Dana Nessel, has opposed investor-owned utility DTE Energy’s application to expedite approvals of contracts to service the data center.

State lawmakers have also raised concerns. Over a dozen attended or submitted comments for the hearing. One of them — Sen. Sue Shink, D-Northfield Township — spoke about the utility’s request for approval of a contract involving 1.4 gigawatts of electricity.

“The attorney general hasn’t even been allowed to read the contract in its entirety,” she said.

The Midwest has seen increasing data center activity. Illinois and Ohio now trail Virginia, Texas, Georgia and Arizona among top-ten locations for the projects popping up to serve firms jockeying for positions in what they hope will be a lucrative market for artificial intelligence, according to Aterio, a Vancouver-based real estate data provider that tracks data center development. 

But along with utility bond issuance to finance the centers’ demand for electricity come resource conflicts and tax abatements.

In a recent local government sector outlook report, S&P Global Ratings said data centers often land in water-stressed areas, bringing skyrocketing energy and water needs and volatile valuations.

“Our concern with data centers is that if you’re so excited to have economic development coming in that you forego future tax benefits that you would have gotten — or if you issue bonds for the infrastructure — how does that affect you?” said Jane Ridley, managing director at S&P. “And how much pressure could it create on credits, in the medium to longer term?”

In January, Whitmer signed a tax break for data centers into law that would reduce state and local tax revenue by over $90 million through 2065, according to a state Senate fiscal analysis. 

In September, the Saline Township board refused to rezone land for the Stargate project, only to face a lawsuit from developer Related Digital. The township reportedly settled the lawsuit in October, letting the project proceed.

If the Public Service Commission approves the power contracts, the companies hope to begin construction on Michigan’s first hyperscale data center in early 2026.

At the hearing, there was enthusiasm from chamber of commerce leaders and construction trade union members. But they were eight of roughly 46 speakers; the rest were Michiganders imploring the commission to pump the brakes.

“I am very concerned about this (1.4 gigawatt) load,” said Ankit Banerjee, a Saline resident and an electrical engineer. “A 1 gigawatt load is ginormous… This is not a routine customer that is being added on. It is a system-defining load on the scale of a major power plant.”

A load that large comes with grid stability issues, voltage fluctuations and a host of other technical problems, he said. “A single spike or outage will stress nearby businesses… Where does the cost of the transmission lines and the updates go?” Banerjee said.

“DTE is already one of the biggest spenders in all of Michigan politics. We shouldn’t just take their word,” said Chris Gilmer-Hill, policy associate at the Michigan Environmental Justice Coalition.

The commission was to decide the motion Friday, but postponed until Dec. 18. In an update to investors, DTE said it expects approval then.

Data centers have drawn pushback elsewhere. The Tucson City Council canceled negotiations over a $3.6 billion data center amid backlash.

High-capacity data centers can consume 5 million gallons of water per day, the equivalent of a 50,000-person town, according to a June 25 report from the Environmental and Energy Study Institute, a bipartisan, independent nonprofit.

WestWater Research predicts data center-related water consumption in the U.S. will jump 170% by 2030. 

Hyperscale data centers alone will use 150.4 billion gallons of water over the next five years, the Alliance for the Great Lakes, a Chicago-based environmental nonprofit, said in an August report.

Conflicts between data center and municipal needs may appear first in a drawdown effect on residence wells, said Helena Volzer, senior source water policy manager at the alliance. Such conflicts could also impact water systems that draw their public water supply from groundwater.

“With data centers, more than 97% are connecting to municipal water supplies,” she said. “They can draw from surface or groundwater, sometimes both… The burden of reporting and permitting falls to the water system, not the data center. And so we really have a knowledge gap.”

Volzer voiced caution about industry claims that closed loop cooling systems drastically cut water use: “These are still really large energy users, and so that drives water consumption at the power plant, and that indirect water use is often not being accounted for when data centers are acknowledging how much water they’re using — and it can be quite significant.”

No binding federal standards exist for data centers; the Department of Energy has voluntary guidelines and certifications. Open Secrets, a transparency group, found electric equipment firms like Oracle and Microsoft spent over $226 million lobbying in 2025.

“At the federal level, there is a fear of missing out,” said EESI President Daniel Bresette. “There are huge numbers and a lot of claims being thrown around. The big question is, how much of this is hype?” 

Data centers can pollute the local water supply. An Amazon data center in rural Oregon exacerbated water problems by driving fertilizer nitrogen in the soil into the town’s aquifer, a Rolling Stone investigation found.

Volzer said the Oregon example “illustrates a key point: water quality and water quantity issues are interconnected closely.”

She added, “There’s a need for state-level policy here.”

Electric utilities struggle to meet data center demand. Consulting firm Grid Strategies has identified data centers as the driving force behind spiking load growth.

In an August report, McKinsey said it expects data centers’ power needs to triple by 2030, adding 460 terawatt-hours of demand.  

“This substantial new load on regional grids, especially in constrained zones, will require new supply build-outs and incremental transmission expansion,” McKinsey said. 

Ratepayers are already under strain, with $29 billion in U.S. utility rate increases approved in the first half of 2025. Across the Midwest, $2.2 billion in rate increases was requested in the second quarter, second only to the West’s $4.4 billion, according to PowerLines, a clean energy nonprofit.

Residential electricity rates increased more than 7% in the year ending in September, according to U.S. Energy Administration data.

In 2023, 15 data centers sapped local governments of almost $1.5 billion through tax incentives, according to an August 2024 report from Good Jobs First, an economic development watchdog. 

“A lot of times what companies are saying — in press releases or during these big announcements — doesn’t align with what is obligated,” said Kasia Tarczynska, senior research analyst at Good Jobs First. “Many of the state level tax exemptions that data centers can receive, they have no job creation requirement attached to these subsidies, or the (requirement) is minimal.”

The group’s November report says zero states disclose both jobs promised and jobs created by data centers.

“There’s really little that local governments receive back from data center projects,” Tarczynska said. “These projects are not creating jobs. They’re not paying their full share of taxes. They don’t buy anything from the local community. They don’t attract suppliers. So there’s not the spillover economic development effects of these projects in the community.”

Wisconsin’s 2023 budget included a sales and use tax exemption for data centers that spans technical hardware, construction materials and property transferred to a data center.  

One of the beneficiaries: an LLC project in Port Washington, Wisconsin, revealed to be a Stargate data center project by OpenAI, Oracle and Vantage Data Centers. 

At its Oct. 21 meeting, the Port Washington Common Council considered a resolution to create a tax increment district for the data center and reimburse Vantage for $455.4 million of upfront costs. The TID passed unanimously at the Nov. 4 meeting.

A spokesman for the city said by email that Vantage will “essentially reimburse itself for these (upfront) expenses by payments into the TID.” He said Vantage will begin paying property taxes on the land in 2026, with that revenue remaining outside the TID; payments into the TID are based on the overall assessed value of the project.

On Nov. 18, the council rezoned 90.64 acres of land for the data center.

The campus will need 1.3 gigawatts of electricity. American Transmission Co. is planning a $1.4 billion transmission line for the project, according to Wisconsin Public Radio.

Area residents have organized in opposition to the power lines. 

Port Washington Common Council members declined comment. Mayor Ted Neitzke IV referred questions to the spokesman.

“There has been some pushback, as you might expect with any project of this scale, but it has come largely from non-residents and (is) based on a lot of misconceptions and inaccurate information,” said the spokesman, who asked not to be named.

He noted Vantage has promised to fund a 1,949-megawatt renewable energy buildout, a mix of 16 battery, solar and wind projects across six counties. The data center will consume 70% of that capacity, he said, and will use closed loop cooling.

Volzer said there is too little transparency from data centers.

“Factoring in water resources right now is just not happening, and it’s something we definitely need to ensure that the water will be available for all of all the things we need it for,” she said.

In her press release, Whitmer claimed Michigan’s Stargate facility “will not use any more water than a typical office building.”

Whitmer’s spokespeople did not respond to questions.

The Data Center Coalition, a lobbying group for tech companies and developers, didn’t respond to requests for comment.