00:18:41 · Maya Barkin
[00:18:41] S2: So, local government approvals do matter, but it's gonna be project by... On a project by project basis that will look at whether a local government is pro data centers or not. And they're also very responding to the local community. Whereas at the state level, it's gonna depend on different factors. And here, ahead of the midterms, this is why we're looking at what's happening at the state level. And governors have a lot of power here because they can move really fast. They can direct agencies to stop issuing permits, like Abbott in Texas or also in Oregon, Codex Environmental Permit Hold. Whereas legislatures, we also looked at... They can set the tax breaks. They can pass law, but they're slower to move. We haven't seen any moratoriums being adopted at the legislative level yet, and we don't see this as a significant risk for the time being. So, yeah, in Texas, going back also to what Jeremie said, I personally think that... Well, first of all, Governor Abbott is the favored candidate. So he's expected to win a fourth term, although the race has somewhat tightened. And I think this is part of the reason why he's kind of changed his rhetoric to being very pro data centers to just in the past few months issuing all of those directives and being clear on his stance on how developers should pay their own way, should respect the communities, etcetera. But I think that after... Once he gets elected, after the midterms, the most likely scenario is that the restrictions will ease. And one meaningful tell here is that all of those directives that he issued will just expire on their own. He doesn't have to reverse them. So it's quite easy for him to to let them slip on their own. And the permitting can then move forward in December or at the beginning of next year.
00:21:35 · Jordan Nanos, Maya Barkin
[00:21:35] S1: Maybe the other thing to dig into more is, functionally how it works. You said all of these different directives. And I was lumping all of this stuff in when I was reading the initial thing. It was just like either pause or conditions, but there's actually a whole bunch of different political positions that can impact the data center. You guys go through like a temporary pause or moratorium conditions, but also candidates can favor, you know, a political position where you force people to pay their own grid costs or protect ratepayers. They can end tax exempt. They can have a position on water limits or reporting of water usage. Bring your own on-site power force there. Community benefits, transparency or bans on the NDA, local control over state decisions. Like, I just listed off all of the different rows on this table here. Is there a coherent position that cuts across all of these, or is it just like a total mess across all of the different states? Like, is there anything everybody's in favor of or everybody's against? Or like, what's the way to think of this? [00:22:40] S2: I would say that Democrats tend to lean towards a temporary pause, but it doesn't mean that if you're a Democrat, you're gonna advocate for a moratorium. As you can see from graph, it's quite bipartisan even for the moratoriums. It's actually very interesting to see how popular these new conditions, whether it's a pay your own grid, end tax incentives, bring your own power, are popular across the political spectrum.
00:22:40 · Maya Barkin, Jordan Nanos, Wayne Ma
[00:22:40] S2: I would say that Democrats tend to lean towards a temporary pause, but it doesn't mean that if you're a Democrat, you're gonna advocate for a moratorium. As you can see from graph, it's quite bipartisan even for the moratoriums. It's actually very interesting to see how popular these new conditions, whether it's a pay your own grid, end tax incentives, bring your own power, are popular across the political spectrum. [00:23:23] S1: Yeah. People seem to be thinking these things through in an interesting way compared to other political positions. Like, everybody's coming up with their own sampling of different positions across all of the different stuff. [00:23:37] S3: I think the Democrats lean toward, oh, we we have to use union labor to build these data centers or operate them. That's a big one. Republicans wanted to leave control to the local communities. I guess that makes sense, you know, like state versus, like, top down versus, you know, bottom up. And the Democrats want more, you know, bans on NDAs. I think that's important, you know, to Republicans. So that's sort of, like, where they're kind of split. But for every now's conditions, energy, ends up tax incentives, I think they're very aligned. [00:24:14] S1: Makes sense. So do you think there's those specific positions, you think those are kind of like no brainers? Those are gonna go through across all of the states, but potentially they don't actually impact the build out in '28 that much? Do think that's a reasonable conclusion?
00:24:35 · Jeremie Eliahou Ontiveros
[00:24:35] S0: Mean, look, to to impact to impact the the twenties... Twenty seven build out, you need something that impacts... Like you need some item that projects already scheduled to be delivered in 2027 don't have. And as we've been hammering a lot over the last few weeks, few months, the OAR '27 forecast, which was I think on the very high side of estimates on the market, based on projects that are already under construction. Like the shell is already under construction. So in the vast majority of cases, they already have the construction permit, storm water, whatever you want. And most of them already have the air pollution permit. Now to be fair, I would say the single biggest downside risk that we have is probably taxes based on our findings in this article notably. And as we've said to our clients over the last few weeks and few months, because some projects that are under construction today where you see the shell being built, that are already funded, right? So some of them have raised billions, if not tens of billions of dollars to fund the DC, don't have the final air pollution permit yet. Because historically timelines are fairly short and so you could sort of get away with this. But in other states, stuff takes longer to get approved, and so it does not make sense to have this sort of more aggressive construction strategy. And so there's a risk, as Maya was saying earlier, that if you followed what the Democrats are proposing in Texas, the pause could be extended until new laws are sort of approved. That could extend towards perhaps mid twenty twenty seven, and then the pause on approving new air pollution permits could be extended from like today, the expectation is about December into middle of next year. And as you don't have this final approval, you're not allowed to actually build a power plant. The data center you can, and that's gonna continue, but the power plants you won't. And so you could actually see a bunch of shells in this scenario that are halfway built or mostly built, but don't have the electricity to run because they were not able to get the permit effectively. So yeah, that's a scenario I would say, not our base case right now, but it's entirely possible. And so that's how 27 can be impacted. Otherwise, most of it, as we said, is 28.
00:26:44 · Jeremie Eliahou Ontiveros
And we go into that in great depth in our article on moratoriums, which was published a few months ago, where, for example, we explained the impact of the statewide New York moratorium, which is mostly a question of like 28 plus. Anything already under construction is permitted and is not impacted by the moratorium.
00:27:03 · Maya Barkin, Jordan Nanos
[00:27:03] S2: Going back to the conditions and taking Texas as the example, so we can look at the two different scenarios. So first, Abbott. So if he gets reelected, what what would happen would... Is that ERCOT would... If everything goes to plan, ERCOT files its audit report. It's targeted beginning of December, and then permitting can reopen with stricter requirements. A restart around December is... It's an interruption, but most projects can absorb this inside their schedules. But Abbott, it is also campaigning around the 2027 legislator ending data center incentives, putting cost protections in law, requiring projects to add electricity supply and tighten water efficiency and rules. So he also wants conditions to be implemented. His Democratic opponent, she's a more bearish case because she would keep a moratorium in place until the legislature passes certain protections. These protections are, for example, protecting households' electricity and water bills, an end to subsidies, a ban on NDAs, union labor. And we looked at the different scenarios, and we estimated that given that the regular legislative session runs from January to May 2027, If approvals go through that session, the pause would run about eight months. And if new rules take effect in late summer, it would be close to a year. So that's five to nine extra month versus a December restart. And campuses that are aiming for 2027 delivery, that doesn't leave them much time to spare. [00:29:26] S1: Yeah. So clearly, this is the race you're watching most closely today, Maya, or are you watching others as well?