The Ins and Outs of Controversial Data Centers

Hey, Jacqueline, Steve, thank you. We want to get to this consumer alert now. AI data centers are here to stay, but they are creating quite the debate. We've seen it right here in our region. And one of the biggest concerns is the stress that they add to power grids. So this morning, we have Joel Schwarz, managing partner of Schwarz Group. Thank you so much for joining us. Before we get to the pros and the cons, Joel, let's just talk about AI data centers and what we're seeing, particularly here in the DMV. Yeah, this goes back, I mean, basically Ashburn, Virginia, for example, is known as data center alley. There's about 70% of the world's internet traffic flows through there. And this goes back to the 1960s. My kids like to refer to it as prehistoric times. But we had DOD Department of Defense with the Defense Advanced Research Project Agency, DARPA, developing this technology and internet, et cetera. So we have extensive fiber networks here. We have favorable tax incentives, a good skilled educated workforce. We also fortunately have a low risk of natural disasters, and also close to the seat of government, of course. So it's a very natural area if people want to locate their data centers. During the cloud evolution, we did have data centers being built, but AI is much more power intensive. Cloud does streaming, but it also allows for a lot of documents to be accessed and then just not using network bandwidth. While AI is constantly evolving, constantly using technology and bandwidth, constantly trying to suck in more data. So it puts a huge stress on the local electrical grid, the water grid, et cetera. And so when it comes to the pros and cons, outline those for us, and what do you see happening ultimately? And funny, it always comes down to money, right? I mean, the truth is the pros are you build a data center, brings a lot of local money. They have tax incentives to further incentivize them to come. It develops jobs, at least initially, because you're basically building the facilities, you're staffing them, you're filling everything out, et cetera. But the problem is that in longer term, you start seeing the impact. And unfortunately, very often, legislators and elected officials worry about the short term, not so much the long term. And so longer term, you see a major draw on the electrical power grid as AI data centers take more electricity, which causes stress on the whole system, as well as potentially higher bills that we've heard a lot of complaints about recently. For example, AI data center, a medium-sized data center, uses about the comparable amount of electricity to 800 to 100,000 average homes in a year, which is basically like a medium-sized city. Then you have water use, they're drawing water, which can cause and lead to exacerbate droughts, noise and air pollution. All data centers have generators, and we know those can be loud, as well as they belch out potentially fumes when they're used. And then there's also a community equity issue, which people don't talk enough about, I think, which is basically that the benefits of an AI data center, obviously, globally, nationally, but the impacts are generally felt locally. You have populations, it's often put in like poorer communities, black and minority communities. They have less political clout, and the electrical bills are going up locally, not nationally. The water usage is being impacted locally, and noise and air pollution locally. So you have national benefit, but very local impact, which is a very big negative. And I think, too, that's why we've seen some moratoriums here in our area and elsewhere, as it relates to that, the equity, community equity portion. Well, what happens then, since you mentioned power, if there's a power outage, who gets priority, the local communities or the data centers? Well, it's funny, because in the recent heat dome, I think it's called the heat dome, the heat wave, whatever we want to call it, basically, the heat wave, there were some communities that actually went to their data centers, said, hey, please, do not use the grid, stay off the grid, use your backup generators. That was a good thing, proactively. But the truth is that, if you can plan for it, great, but if you're nationally using electricity, the electrical grid is still older, it's still somewhat stressed. So there's only so much you can do about that. Water also, there was a very recent cyber exercise, a red team exercise they're known as, basically simulating an attack on our water systems across the country. And within the first couple of hours, the inject was basically that China had attacked our water system in a precursor to attack in Taiwan. And the military said, we need you to prioritize restoration of our water to the military system, the facilities, et cetera, the generators, et cetera. Meanwhile, the local population suffering, they were debating whether or not to first restore power to the data centers or the boat local population. So there's a lot of balancing that has to happen. And depending upon the circumstances, the local community could lose out in those kinds of things. And interestingly enough, New York is the first state, as of yesterday, the governor signed an executive order passing a statewide moratorium, while here locally, they've been handled by communities. Montgomery County and Frederick County have six month moratoriums. Yeah, Prince George's County. Yeah, we've been covering that. And we also covered that first statewide moratorium for a year of New York. Joel, thank you so much. We gotta have you back. There's so much to get into, but you certainly did a good breakdown, I feel, on the pros and the cons and what's ahead. We appreciate your time. Steve.