Blackstone’s Data-Center Ambitions School a City on AI Power Strains

(Bloomberg) -- The power lines weren’t even built, yet ran into resistance at every turn.

They would encroach on more than 100 properties and houses, hitting home values and crossing people’s yards. Few saw them coming — not city officials, nor local homeowners — until employees of the state’s largest utility came calling with designs to build high-voltage wires on their land.

The lines were set to hook into the latest piece of Blackstone Inc.’s data-center empire. In the process, they would lay bare to the city of Fayetteville, Georgia, and surrounding residents just how power-hungry the AI revolution will be.

QTS, the data-center developer that Blackstone bankrolls, is building 10 hulking bunkers over a stretch of land that’s more than 600 acres. They’ll hold thousands of computers for companies including Microsoft Corp. The complex is expected to consume as much electricity as about a million US households — leaving utility Georgia Power rushing to build the infrastructure to meet demand.

Around Fayetteville, a community ringed by creeks and pine trees, the data center has stirred discord over how to accommodate the unprecedented power needs. Local officials say they were caught off guard. Neighbors are divided on whether to accept Georgia Power’s offers for access to their land. Looming over everyone’s negotiations: the prospect of having property seized by eminent domain.

“This is my first home; it kills me,” said Hannah Schilsky, who moved to the area two years ago from New York.  She corralled neighbors for a fight. 

Residents are up against forces unleashed by the state’s most influential utility and a company backed by the world’s largest alternative-asset firm. It’s a consequence of America’s race to harness the artificial intelligence boom with critical — but resource-intensive — data centers. The costs and benefits of those properties aren’t borne equally, and some pay the price more than others.

What’s happening in Georgia is coming to more US towns as investment firms and tech giants pour ever-bigger sums into data centers, creating new stresses on the land and fabric of communities. Connection requests for big data centers “are stretching the capacity of local grids to deliver and supply power at that pace,” according to an Energy Department working group report this year.

At the same time, the properties are crucial to the tech tools that have taken root in America’s national security apparatus, communications and everyone’s daily lives. The more people scroll Instagram, make payments with Venmo and generate stories with ChatGPT, the more data centers are needed.

Big Tech and Wall Street are ready to cash in. And few financial companies are pouring in money like Blackstone, which bought QTS in 2021 and turned it into the fastest-growing US data-center landlord. It’s now a major driver of returns for the private equity giant, with a footprint that includes roughly $50 billion in data centers and some $50 billion of prospective developments in the pipeline.

“Blackstone is positioning itself to be the largest financial investor in AI infrastructure,” Chief Executive Officer Steve Schwarzman told Wall Street analysts in July. The $1 trillion spent in the US on data centers in the next few years would help send power demand skyrocketing 40% in a decade. This, he said, was an opportunity for Blackstone.

This account of the data center’s arrival to Georgia is based on conversations with almost three dozen people close to the matter, including local authorities and residents, as well as executives at Blackstone, Georgia Power and QTS.

Georgia Power, owned by Atlanta-based Southern Co., said it has a thorough process for determining transmission lines’ placement and that it engaged with dozens of property owners and residents to work to address their concerns. QTS said it had no input on the location of power infrastructure.

“QTS is excited to be a member of the Fayetteville community,” the company said in a statement. “This project will generate millions of dollars in tax revenue to support local priorities related to schools, roads, housing and other critical needs, while also reducing tax burden on residents.”

Blackstone, in a statement, said it is “proud that our investment in QTS provides the digital infrastructure critical to the future of our country and economy.” 

Small Town Divided

In Fayetteville, some 20 miles (32 kilometers) south of Atlanta, word of the data center turned the city against itself in an already divisive election year. Neighbors tried to persuade each another to keep up the fight and avoid accepting offers from Georgia Power. In October, four dozen residents convened outside a church and raised signs protesting the line. Members of the patriotic group Sons of the American Revolution fired muskets while cars blared horns in solidarity.

A group drove to Atlanta in October and urged the regulators overseeing utilities to do something. “What these people are being asked to do is destroy the value of their property,” said Fayette County resident Diana Dietz, “to serve not the public good, but to serve QTS data centers.”

QTS isn’t a household name to most people. But CEO Chad Williams, who founded the Overland Park, Kansas-based business two decades ago, has aims to make it the biggest business of its kind. It’s rapidly building out across the US, and is funneling billions of dollars from Blackstone’s investors to construct its complexes adorned with a stylized eagle logo.

Georgia has been a big market for QTS, which had been building a presence in the state since the 2000s. With his company flush with cash after the Blackstone takeover, Williams was the person the Fayette County Development Authority had been waiting for.

Over the past decade, the most notable new development in the area had been a film studio that became a shooting location for Marvel movies. Trilith was partly financed by the region’s most famous billionaire, Chick-fil-A Chairman Dan Cathy — leading some locals to dub their area Cathyville. The economic board faced public blowback for greenlighting tax perks for the development. It was eager to woo more companies and reduce the county’s reliance on residential taxes.

“The data center is what we believe would help us diversify,” said Darryl Hicks, who formerly served as chair of the board and helped recruit QTS. As part of the deal brokered between the developer and landowners, a portion of sales proceeds would flow to the authority’s coffers, solving its funding woes and providing cash for reinvestment in the community. It was the culmination of some half a dozen years of efforts to bring in a data center.

QTS estimates that the development will contribute more than $1 billion to state and local taxes over the next 15 years. It will bring the county tens of millions in property taxes a year over time, multiples of the $31,000 that landowners of the same plot paid in 2021, said Niki Vanderslice, CEO of the Fayette County Development Authority. The portion of QTS’s taxes going to the county board of education this year will cover the equivalent of some half a dozen teachers' salaries.

Power Needs

Multiple local authorities say there was little discussion with QTS about the data center’s power needs during the land sale negotiations. “We were told that what they had there was sufficient,” said Fayetteville Mayor Ed Johnson.

People close to QTS said its representations to local authorities were based on what Georgia Power told the company.

A September 2022 report from engineering firm Kimley-Horn and Associates, which was hired by QTS, said the Fayetteville center would use existing transmission lines. It stated that the servers in the complex would require 756 megawatts of power. The report, which was addressed to the city of Fayetteville, didn't detail that once factoring the need to cool and run all the data centers, the full power requirement would be 1.4 gigawatts.

“QTS has been transparent in our communications,” the company said, adding that it is industry standard to communicate customers’ critical capacity needs and that it told Georgia Power of the 1.4-gigawatt need since the beginning of the project. It’s more than the amount of power produced by one of the two nuclear reactors at the new Plant Vogtle, which Georgia Power opened seven years behind schedule and $16 billion over budget in 2023.  

Georgia Power said in a statement that transmission planning is an ongoing process and it doesn't publicly discuss confidential information about load levels of its customers with local officials. “This is a complex and large-scale project that has evolved over several years,” the company said.

Two months after the Kimley-Horn report, OpenAI released ChatGPT. That unleashed a scramble among tech giants for the property, parts and power needed to meet demand for generative AI. In Fayetteville, Microsoft has signed on as a QTS tenant. 

Across the country, “developers of new data centers have massive requests for power,” said Andrew Batson, the head of data-center research for the Americas at real estate services firm Jones Lang LaSalle Inc. “We’re getting close to capacity in key markets.” 

In Northern Virginia, data center capital of the world, new power lines are needed to serve unprecedented load growth. Arizona’s largest utility paused new business with big data center customers late last year to study the infrastructure needed. After tapping out major hubs, data-center companies are training their sights on lesser-known markets like South Carolina.

QTS alone now has some 2.5 gigawatts of signed power capacity. That’s less than half of the roughly 6 gigawatts it is aiming toward — more electricity than is used by the city of Miami. Even as the company has become one of the highest-returning bets in Blackstone’s history, QTS’s power requirements have led to concern among executives at both firms about public backlash, according to people close to the matter.

The new data center in Fayetteville is likely to be “at or near the top” of all of the projects Georgia Power serves, Southern CEO Chris Womack said in an interview on the sidelines of a conference last month.

Over the past year, Georgia Power has more than doubled its forecast for potential power use by big developments like data centers or factories that are expected by the mid-2030s. “The company has never seen such a significant number of new large customer projects materialize in such a short period of time,” an earlier planning document read. Southern is now considering operating a coal plant longer than expected and has proposed building new gas generation, moves that could complicate its carbon-emission goals.

When Georgia Power decided the Fayetteville data center would necessitate new infrastructure, it drew up plans for lines that would snake through two key residential roads. Key city officials didn’t get details of where the lines would go until May, when Georgia Power was already talking to residents about buying access to their land. QTS learned about the specifics of the line when the public did, said a person familiar with the matter.

In Georgia, state utility regulators have no authority to oversee transmission lines, giving companies like Georgia Power a lot of sway over where to build that critical infrastructure. When the utility filed a transmission plan in February, it included just one page on the QTS lines, with no explanation of why they were needed or how the route was decided. The cost was redacted.

The rate QTS pays is intended to cover the cost of all utility infrastructure dedicated to the site. Womack said Georgia Power takes community input into account when deciding where to put new lines, and considers a number of different options. 

“We look at the most economic route to serve that customer,” he said. “But also we look at the impacts in terms of trying to minimize impacts to the community.”

Lobbying Effort

Blackstone didn’t just put money behind QTS. In Georgia, the firm introduced QTS officials to Eric Tanenblatt, who heads the US public policy practice for the law and lobbying firm Dentons. He’s a former chief of staff to a past governor who knows the state’s power brokers well.

Earlier this year, Georgia lawmakers proposed a pause on tax breaks on data center equipment and a task force to study their power needs. QTS instructed staff to blitz senators with calls on how the bill would kill their livelihoods. A Fayette County Development Authority official said the QTS data center would help put the community “on the interstate of connectivity.”

After the legislation passed with a narrow margin, Tanenblatt met with top staff of Governor Brian Kemp’s office to discuss the bill. In May, the governor vetoed the bill, preserving tax breaks for the industry. 

A spokesman for Kemp said the office had extensive conversations with a broad range of parties leading to the decision. “When companies are expecting something and put it into their planning, we don’t want to pull the rug out from under their feet,” he said.

Even with the win in the state capital, QTS staff were starting to get disturbed about how they were received in its towns. Some have shared posts about the power line in Fayetteville in an internal chat and voiced concerns that the company hadn’t proactively connected with residents and shown enough leadership in the community.

It now has a newsletter to update locals on the data center. Since arriving to Fayetteville, the firm partnered with community organizations to do everything from hiring veterans to preparing students for tech jobs to replanting trees. QTS has also taken part in power initiatives such as a 2022 deal with Georgia Power to add nearly 350 megawatts of renewable energy to the grid in Atlanta.  

$2,800 Offer

Among local residents, Schilsky never intended to be the face of the data center backlash. She had moved to the area from New York in 2022, part of the migration of Americans fleeing coastal cities for warmer and more affordable areas. After snagging a job at a company that operated out of Trilith Studios, Schilsky used savings and a windfall from day trading to buy her half-a-million-dollar home.

She was shocked this year when Georgia Power approached. She said the company told her it wanted to buy an easement on her land, cut down all of the trees in her front yard and install a more than 100-foot pole and industrial-grade wires. It offered $2,800, Schilsky said  — not anywhere enough to make up for what she said would be wiped out from her home value.

Power lines can decrease home values by 10% to 35%, with rural houses facing larger drops, said Kurt Kielisch, president of Forensic Appraisal Group. Buyers worry about electrical leakage. Transmission lines like the one Georgia Power is planning decrease the value of nearby properties even if the lines don’t cross them, he said.

“Have you ever seen an MLS listing that says, ‘Nice view of the power lines?’” he said.

When Schilsky rounded up neighbors to city and county meetings earlier this year, it was the first time many local officials heard about the route.

Dozens of neighbors said they would refuse Georgia Power’s first offers. “By collectively denying the power company’s offer, we stand a significantly better chance of forcing Georgia Power to change their route,” a community Facebook page read.

The Hopeful Primitive Baptist Church, established in 1825 and home to burials for Civil War soldiers and other veterans, told Georgia Power that “this is piracy, not progress,” said pastor Scott Johnson. He said the utility made clear in early conversations with church officials that the lines would cross the property’s grounds and a tree would have to be moved. Georgia Power disputes this, saying it would have been across the road. The church urged the utility to bury the lines, a move that would eliminate unsightly overhead wires susceptible to hurricanes but would add to costs.  

“People are willing to destroy nature in order to have more consumption of TikTok videos on their phone,” said Linda Perry, who moved from Colorado four years ago to care for her mother. She said the power-line plans initially laid out would destroy a dam that creates a small lake where she watches birds. The utility later moved it, but now she worries that development on the easement could someday block the only driveway to her home. “I feel like the little guy getting trodden over,” she said.

Some residents feared if they didn’t reach the deal their land would simply be seized. In its statement, Georgia Power said that it only uses eminent domain if exhaustive efforts fail, which equates to about one-tenth of 1% of cases. 

Raised Bids

By fall, Georgia Power raised bids by tens of thousands of dollars for several households. Schilsky’s bid increased to some $140,000. One sign protesting the line came down — and neighbors noticed.

Hopes that the line could be buried were fading. Georgia Power said that it would take too long and cost too much. A regulator said in a letter that added costs from putting the lines underground would be so high that they would be passed on to customers, potentially increasing electricity bills for millions of users.

In October, utility staff arrived at the Hopeful church to make clear they would move the line across the street. As church and power officials stared at each another from opposite pews, Johnson, the pastor, said that this changed nothing for Fayette County. “In the court of public opinion, we’re going to continue to raise the heat.”

Georgia Power plans to clear trees for the transmission lines next month.

Johnson, the mayor, says the data center is still a win for Fayetteville, but it could have been done differently. Had authorities known about the power demands, there would have been more discussion about where the data center should have been located, he said.

Even Schilsky took a back seat in the town’s fight as she entered negotiations with Georgia Power. She said her anger is redirected at the system that enabled the power and data-center companies. The whole experience has made her want to leave the state. 

In recent weeks, QTS has sent holiday cards to Fayette County residents with gift cards to local BBQ and pizza establishments.

The company is set to continue its rapid growth. In October, Blackstone President Jon Gray said QTS had grown lease capacity eightfold since its takeover. That cemented his firm as the largest data-center financial backer in the world.

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