Grant County Weighs Potential Data Center Development

Grant County commissioners have lifted a temporary moratorium on data center development, allowing discussions about a potential project to move forward as officials weigh the promise of new tax revenue against concerns about water, farmland and the long-term effects on the community.

The commissioners voted unanimously to end the moratorium effective immediately after hearing from representatives of Pioneer Electric Cooperative, who said a prospective large electricity customer was negotiating a service agreement with a deadline around Thanksgiving. Pioneer CEO Lindsay Campbell stated that “Pioneer Electric is not here to advocate for lifting a moratorium, we are here to provide you with facts so our communities can make informed decisions about potential economic development.”  Campbell has stated that Pioneer does not determine or dictate what businesses locate in its service territory as it believes economic development decisions belong to the communities and local leaders. She stated Pioneer’s role is to be an energy partner by providing support, transparency, and factual information about electric service, reliability, rates and infrastructure.The vote does not approve a data center or guarantee one will be built in Grant County. The prospective customer's identity has not been disclosed, and negotiations remain ongoing.

“There are some interested parties that are looking, exploring opportunities. We have nothing worked right now,” County Commissioner John Martin said.

Martin said the county's earlier moratorium gave officials time to research the industry, attend seminars, and speak with people familiar with data center development. Commissioners want to understand what restrictions might be necessary without discouraging businesses from considering the area.

“With the right structure, a data center could be beneficial to the community,” Martin said. He said the county's goal is to protect residents while remaining open to investment.

“My main concern is that we would protect our community and do what's in our best interests,” Martin said. “But also, I don't want to make it impossible to attract some industry that wants to grow here and become part of our community.”

Water use is among the issues officials are examining. Data centers' water requirements vary depending on their cooling systems and design. Martin said air-cooled systems could help address concerns about water consumption, though the needs of any proposed facility would depend on its plans.

Martin said he believes the county could require data centers to use air-cooled systems to address concerns about water consumption.

Noise, location, and effects on agricultural land are also concerns. Martin said he had not seen information suggesting noise would necessarily be a major problem, but said potential issues should be addressed before an agreement is reached.

The county's economic development director, Bob Dale, said he supports considering a data center if the project makes sense for Grant County.

“For the right opportunity, I would say yes to a data center,” Dale said. “That’s why we’ve made a special effort to educate ourselves on the difference between the right opportunity and the wrong one.”

“There are some bad actors in data centers. There are some good actors in data centers, and what we’re trying to be is educated enough to be able to tell the difference when they come.”

Dale said a facility could bring substantial revenue and help ease pressure on taxpayers, depending on its size, tax arrangements, and operating costs. He said some developers may be willing to cover the costs of their projects without seeking tax abatements or other special treatment.

But a large investment does not guarantee long-term success. Dale said a facility could become unprofitable as technology and the data center industry change, leaving the community with a property that no longer generates the expected economic activity.

“If you’ve got something on it, it needs to be generating revenue,” Dale said.

He also cautioned against sacrificing groundwater or productive farmland for a project that might not deliver lasting benefits.

“I don’t want to see all of our groundwater used up. I don’t want to see a huge chunk of agricultural land go to waste,” he said.

Dale said Kansas' sales-tax exemption for qualifying data center equipment has been a major draw for developers.

“That was absolutely the number one reason they started looking at the state of Kansas,” he said.

The exemption means qualifying equipment purchases do not generate the same sales-tax revenue they otherwise might. Dale said the overall value of a project would depend on what it contributes to the local economy and how its tax arrangements are structured.

Western Kansas may appeal to developers because of available land, energy resources, and high-voltage transmission infrastructure. Grant County has some infrastructure that could interest a prospective developer, Dale said, but other communities are competing for the same projects.

“We may or may not get one. It just kind of depends,” he said.

Ulysses City Administrator Luke Grimes said the city's role would depend on where a facility was built and whether it needed municipal utilities or other city services.

“There's a massive variety of different types of those things, different sizes,” Grimes said.

Grimes said he was not aware of plans or discussions to build a data center within Ulysses. Some facilities could rely on privately developed wells, while others might seek municipal water or other public utilities.

The city has some zoning authority within three miles of its limits, but its jurisdiction does not extend indefinitely into the surrounding county.

“We don’t have jurisdiction over anything out in the county if they were to put it 10 miles out of town,” Grimes said.

That means the location of a project would help determine which local government could regulate aspects of its development.

The immediate reason commissioners lifted the moratorium was the electricity service agreement under negotiation, according to Pioneer representatives. The cooperative said it had held an introductory call with the prospective customer the previous week and was preparing for more detailed contract negotiations. The customer's identity is protected by a nondisclosure agreement, but Pioneer agreed to arrange a meeting with county officials.

The Thanksgiving deadline relates to how Sunflower Electric Power Corporation, Pioneer's wholesale power supplier, evaluates large electricity users. Sunflower needs to identify prospective customers that have committed to service agreements so it can study transmission requirements and determine whether infrastructure upgrades will be needed.

Pioneer's prospective customer was first in the queue, Campbell said. Missing the deadline could mean a longer wait for transmission capacity and potentially additional upgrades.

“If the moratorium is in place, that agreement is not going to get signed in, and it will kill the project, or they’ll look to an adjacent county potentially to locate the project,” Campbell said.

Pioneer representatives said the project could involve hundreds of millions of dollars. They pointed to a previous project that moved from Gray County to Ford County after Gray County enacted a moratorium, stating that Grant County could similarly lose an investment to a neighboring community.

Campbell also said large electricity customers would be responsible for applicable infrastructure and generation costs. They described financial safeguards, including significant cash collateral requirements for prospective large loads, intended to protect the cooperative if a customer failed to meet its obligations or electricity prices rose sharply.

Those financial protections do not guarantee a developer will address local concerns, however.

Campbell said the cooperative encourages prospective customers to meet with communities early, even though it cannot legally require developers to resolve every local concern before seeking electric service.

“If they’re resisting that, that’s a red flag for us right off the bat,” Campbellsaid.

Before voting, commissioners said they wanted an opportunity to meetwith the prospective developer. Pioneer agreed to contact the customer and also planned a separate community event to discuss large electricity users and their potential effects on cooperative members.

Commissioners said they could reconsider the moratorium if serious concerns emerged. Lifting it allows negotiations to continue; it does not settle questions about water, land use or other restrictions.

The meeting also touched on the possibility of new sales-tax revenue. State Representative Marty Long, cited Barber County's 1% countywide sales tax and estimated that electricity consumed by a data center could generate approximately $1 million annually there. The estimate was presented as conservative, but no comparable projection was provided for a Grant County project.

Grant County does not currently have a countywide sales tax. Commissioners discussed the possibility of asking voters to approve one in the future, potentially to support public services or offset property taxes. No tax was approved during the meeting.

The sales-tax exemption for qualifying equipment does not necessarily exempt electricity consumed by a facility.

Pioneer has said it expects interest in energy-intensive businesses, including data centers, to increase across its western Kansas service territory, and under Kansas law, Pioneer has an obligation to serve power to any business looking to locate within its service territory.  But the cooperative said this obligation does not mean it exposes the existing membership to undue risk or cost increases to serve these types of businesses. It is working with Sunflower to ensure new customers cover the costs of serving them rather than shifting those expenses onto existing members.  Campbell stated that it will not enter into an electric service agreement unless these protections are in place and the agreement will benefit all Pioneer members.

Campbell also said additional margins from large customers would help offset rising costs, support long-term rate stability, and fund reliability improvements for all Pioneer members.

For now, the prospective project remains in negotiations, and its plans have not been made public. Commissioners have agreed to let those discussions continue while they seek more information about the developer and what a project could mean for Grant County.

Dale said he understands why residents are cautious but hopes they will give officials the opportunity to evaluate proposals before drawing conclusions.

“I fully understand people’s concerns. I understand their hesitations,” Dale said. “I hope they will trust us that we’re trying to do the right thing.”

Martin encouraged residents with questions or concerns about potential data center development to contact him directly. He said he wants residents to have an opportunity to raise their concerns as the county continues evaluating its options.