Economic prosperity through data centers is being thrown into Louisiana’s lap. But it’s not enough just to solve the puzzle of economic incentives; political necessities all need attending to.

It turns out that a number of states, run by Democrats, are throwing up roadblocks, if not outright banning data centers, on claims that they hog too much water and raise electrical rates. Certainly, the Monroe area, while seeing a surge in business and tax receipts as a result of siting the Hyperion project in Richland Parish, also has witnessed negative externalities that could sour people on the idea.

However, such assertions ignore how other states, many farther along in the game, have engaged in policies that sidestep bothersome spillover effects. After all, they don’t have guns pointed at them, forcing them to hand out massive, no-strings-attached incentives.

One such tactic is to allow the centers to build and operate their own large-scale, essentially private, power generation stations. A group of large Louisiana users, some of which already produce their own power in amounts large enough to sell a small portion at wholesale into the power grid, for a quarter century has argued to loosen constraints to let them produce their own on a large scale, which they think they can do more cheaply because they don’t have to subsidize systemic costs if they’re off on their own. The technology is becoming more and more attainable, such as through small modular nuclear reactors, which the state permitted last year.

Yet while that seems straightforward for new entities, if existing ones were to exercise such a right while wanting to rely on utilities for backup, this would cut revenues to regulated utilities, which are allowed to charge a certain rate for a certain mix of numbers and kinds of customers. Such a dropoff could make business unprofitable for providers, especially if regulators don’t allow them to increase rates to others to meet the fixed costs tied to larger and more voluminous users from which they no longer can garner revenues for the most part.

However, this risk already occurs: large users can go out of business or relocate. The fear of some is that data centers are even more likely to up and leave before the additional capacity brought online to service them has been paid for by the provider. Their answer to that has been that, as power needs have been increasing anyway, the added capacity would obviate the need to build later, as this new slack then can be deployed to address the increase even without a big data center as a customer.

Still, at the same time, existing capacity was based upon large customer participation, some of whom now want to go off on their own. To offset this, policy could dictate that system leavers pay a toll, even if spread out over years, to compensate, as well as a higher rate to use the system essentially as a peaker.

The Public Service Commission, after a legislative attempt went nowhere, has begun the process of formulating such rules. Its business is regulating these things, but never at such a scale, so a new trail must be blazed. After all, Hyperion will need energy the equivalent of that used in a million homes, which is almost as much as its provider Entergy already has on its books in the state.

It’s imperative that the PSC gets this right, an issue that could become fodder for campaigns in two PSC districts this fall. With the mainstream media parroting talking points of Democrats against data centers, who are trying to burnish their populist credentials after Republicans have swiped many lower-income voters with those appeals, even Republican voters look askance at centers. With Louisiana being handed this economic development opportunity on a platter as Democrat-run states chase centers away, sensible policy will allow the state to capitalize on that foolishness.

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