The agency calls its July guidance a commonsense reading of the Clean Air Act that shields ratepayers; the top Democrat on Senate EPW calls it a handout to the world’s richest companies.
The Environmental Protection Agency has told its regional offices that a gas-fired power plant built to run a data center, and nothing else, is not covered by one of the oldest pollution-trading programs in federal law. Three months later, the question of whether that reading is right has become a running dispute on the Senate Environment and Public Works Committee, the panel that writes the Clean Air Act.
The guidance is narrow on paper. It matters well beyond Washington because the companies building the largest artificial intelligence campuses, many of them headquartered between San Francisco and San Jose, are increasingly looking at generating their own electricity rather than waiting years for a utility hookup.
What the EPA decided, and why
In a July 16 memo to the agency’s regional administrators, Aaron Szabo, the assistant administrator for the Office of Air and Radiation, concluded that the Acid Rain Program, created by Title IV of the 1990 Clean Air Act Amendments, does not apply to “islanded” generation: plants with no connection to the electric grid.
The agency’s legal reasoning runs through its own definitions. The program’s regulations, at 40 C.F.R. 72.2, define a “utility” as any person that sells electricity, and they define a covered “generator” by reference to the units reported to the Department of Energy on its Form 860 as that form existed in 1990. That form, the memo says, covered utilities selling electricity primarily for use by the public. A plant that sells nothing to the public and is not tied to the grid, the EPA concluded, is outside that definition. The memo offered an example: a roughly 500-megawatt complex of simple-cycle gas turbines and reciprocating engines feeding only an adjacent data center owned by someone else.
The memo also set limits. It says a plant that later connects to the grid may become subject to the program, that it does not address any other Clean Air Act requirement, and that it is not a final agency action. It says “several companies and States” had asked the agency for clarity.
In an accompanying release, the EPA said “the best reading” of the statute limits the program to facilities that sell electricity or must report to the Energy Department. It framed the guidance as part of President Trump’s agenda on artificial intelligence and his Ratepayer Protection Pledge, under which large energy users commit to “build, bring, or buy” the power they need and pay its full cost, so that households are not left covering the bill for new grid capacity. The guidance, the agency said, gives developers “greater flexibility in where and how quickly they can build.”
“Ensuring that the United States maintains our artificial intelligence dominance is essential to national security and economic prosperity,” Mr. Szabo said in the release. “At the same time, it is equally important that we safeguard our communities from utility price hikes.” The guidance, he said, “will provide an avenue to do both,” adding, “EPA is proud to further the President’s agenda through commonsense approaches to regulating.”
The Senate inquiry
Senator Sheldon Whitehouse of Rhode Island, the committee’s ranking Democrat, and Representative Jennifer McClellan, Democrat of Virginia, opened a bicameral inquiry in September, joined by Senators Edward J. Markey, Chris Van Hollen, Mark Kelly and Cory Booker and 24 House members. They asked the EPA to answer by Oct. 7. In an Oct. 15 release, the committee’s Democratic staff said the agency had not yet responded. Mr. Whitehouse also requested documents from Meta, Microsoft, Google, OpenAI, xAI, Amazon Web Services, Anthropic, Fermi America and Joule.
Their letter calls the guidance “a handout to the richest and most powerful companies in the world.” It argues that under the EPA’s reading, “massive new gas-fired power plants large enough to power cities would be exempt from NOx and SO2 caps under the ARP only as long as they do not serve the public electricity grid and instead exclusively power a privately-owned data center,” which the lawmakers called “contrary to Congress’s design for the Clean Air Act.”
The inquiry builds on earlier work. In March, Mr. Whitehouse, Mr. Van Hollen and Senator Martin Heinrich of New Mexico questioned the developers of a dozen data-center projects that planned to run on gas-fired plants.
Environmental groups have made a parallel legal argument. In a Sept. 4 letter, Earthjustice and the Natural Resources Defense Council told the agency that the program’s regulations borrow only Form 860’s definition of a generator, not its definition of an electric utility, and asked the EPA to withdraw the memo. The groups noted that sulfur dioxide emissions from covered power plants in 2023 were 96 percent below 1995 levels, an outcome they credit to the program.
Where the majority stands
The Inquirer did not find a public statement on the memo from the committee’s chairwoman, Senator Shelley Moore Capito, Republican of West Virginia. Her emphasis has been speeding approvals for new energy and infrastructure, the subject of a permitting hearing she held in January. In September she joined Senators Mike Lee, Mr. Whitehouse and Mr. Heinrich in introducing the American Affordability and Jobs Act, a bipartisan permitting bill that would also require data centers to pay the full cost of the transmission built to serve them. That overlap, on who should pay for data-center power, is one of the few places where the committee’s two sides have written the same sentence.
Law firms advising developers have described the guidance as modest. A WilmerHale client alert in August noted that new source review, new source performance standards and federal limits on hazardous air pollutants still apply to these plants, and that because the EPA issued the memo without notice and comment, it is more exposed to a legal challenge or to reversal by a future administration.
What it means in California
For Bay Area projects, the federal memo changes less than the headlines might suggest, because California’s own permitting rules apply either way.
The Bay Area Air Quality Management District, which updated its guidance for data centers this month, permits the diesel and gas generators those facilities install. Its rules can require best available control technology and a health risk assessment, with stricter thresholds in communities it designates as overburdened. Permits generally allow backup generators to run only in emergencies, not to support the grid; running engines as a primary power source faces stricter requirements. The district notes that cities and counties decide where data centers go, and that environmental review under the California Environmental Quality Act comes first.
Thermal power plants of 50 megawatts or more also fall under the California Energy Commission, which reviews large data-center generator fleets in Silicon Valley through its certification process or a small power plant exemption. A 500-megawatt plant like the one in the EPA’s example would face that review in California regardless of how Washington reads Title IV.
The memo’s practical reach is likelier to be felt in states with lighter rules and faster interconnection timelines, and in where Bay Area companies choose to put their next campuses. Several of the companies Mr. Whitehouse wrote to are based in the region, and their answers, if they provide them, may say more about those choices than the agency’s memo does.
The EPA’s reply to the lawmakers, which was due Oct. 7, is the next marker to watch.
Rosalind Achterberg covers the Senate Environment and Public Works and Energy and Natural Resources committees, from permitting and water law to nominations and the federal lands that cover nearly half of California, for the Inquirer’s Energy & Environment desk. More from Rosalind Achterberg
