Healey's data center order reprices power, and the megawatts will move

Massachusetts has one large-scale data center in the planning stages and, as of this week, a set of rules that will make a second one harder to site than the first. The executive order Gov. Maura Healey signed stops short of a moratorium, but a developer deciding where the next tranche of capital goes will find that distinction narrow.

The order applies to projects of 25 megawatts or more and works on three levers at once: state agencies cannot issue permits or authorizations unless the developer negotiates a community benefit agreement with its host municipality, a structure designed to give towns veto power over new development; developers must either fund the delivery infrastructure their facilities need or pay into a ratepayer protection fund meant to keep grid-upgrade costs off other electricity customers; and nondisclosure agreements between state agencies and developers are barred, taking confidentiality out of the state-level process.

Healey framed the package at a press conference as protection for the people already paying the bills—protecting residents, protecting ratepayers, and blocking irresponsible development so that communities and the state stay in a good place, with the community agreements giving residents what she called full voice in the process.

That framing is worth taking at face value, because it tells you what the commonwealth believes it is trading away. Massachusetts has largely sat out the data center building boom, according to Bisnow, and industry leaders told the publication the order is likely to entrench that position, leaving few if any developers looking to move projects forward in the state.

There's a high burden for developers to meet, said Gregory Sampson, a partner at Sullivan & Worcester who leads the firm's permitting and energy and infrastructure practices, and in the short run he said this is going to keep most big developers out of the state.

The power requirement is the lever that should move capital. Shifting the cost of delivering megawatts onto the project—or onto a fund the developer pays into instead—takes an expense that utilities and their ratepayers have historically carried and puts it inside the pro forma. In this market, power rather than land is the site underwriting in data centers, and the energization calendar behaves more like the cap rate than the dirt does. An executive order cannot build a substation, but it can decide who pays for one, and Massachusetts has decided.

Months before the order, the administration stopped accepting applications for the state's data center sales tax exemption, and withdrawing the tax advantage and then the speed advantage in a single cycle suggests the commonwealth has weighed the tax base against the political cost of the load and come down on the side of the load—close to what the governor said the order is for.

Allocators are already asking where the megawatts land, because deployment that might have been penciled into Massachusetts will likely be redirected to markets with shorter entitlement paths, where power cost is not negotiated town by town. Demand for compute does not fall because one state raises the bar; the siting decision moves, and the load shows up on someone else's balance sheet. Read this way, the order is a relocation within the data center capital cycle rather than a subtraction from it.

Whether the mechanism travels is the less comfortable question. Data centers have become a hot-button political issue, and states are increasingly looking to regulate the expansion of AI infrastructure, per Bisnow; a community benefit agreement requirement paired with a ratepayer protection fund is a template any statehouse can lift, and if it spreads, the cost lands on the asset class rather than on one commonwealth. Long-hold assets are priced off the cost of capital, and a permitting regime that can be rewritten by a single executive signature raises it. That is a risk worth underwriting in any market where grid strain has become a political problem; Massachusetts has simply made it visible.

The first test is the project already in planning, which now needs a negotiated agreement with its host town before it can hold a state permit, and the amount of power that agreement requires the developer to fund is the number the market will read. Below 25 megawatts, none of this applies; expect the earliest post-order projects in the commonwealth to be sized accordingly.