-Data centers are targeting Nevada.

Developers say the state will benefit, but at what cost?

Plus... -While there's low awareness of how AI is being used on the ground, there's high conviction in terms of the need to govern it, which I think is a dangerous mix.

-How the gaming industry is using artificial intelligence and what questions remain about regulating it, that's this week on Nevada Week.

♪♪ -Support for Nevada Week is provided by Senator William H. Hernstadt and other supporters.

-Welcome to Nevada Week.

I'm Amber Renee Dixon.

The gaming industry, a driving force in Nevada's economy, is expanding its use of artificial intelligence.

But a new eye-opening report from UNLV raises questions about how much oversight exists.

That's ahead, but we begin with data centers, which could play an important role in diversifying the state's economy beyond gaming.

These physical facilities store, process, and move massive amounts of data but also require significant amounts of electricity and, in some cases, water.

Concerns about water use, grid reliability, and whether customers could face higher electricity costs prompted Reno City Council to adopt a moratorium on new data centers.

And in Boulder City, the Planning Commission recently voted against a proposed data center there.

Data centers are now a hot topic in politics, business, and science.

And joining us to discuss what's at stake if developers build more of them in Nevada are Eric Neugeboren with The Nevada Independent and Erik Henzel, Staff Research Scientist at Desert Research Institute.

Thank you both for joining us.

And, Erik with Desert Research Institute, I'm going to start with you.

You co-authored a report on how much water and electricity these data centers consume.

What amount of consumption are we talking about here?

How significant is it?

(Erik Henzel) Yeah, absolutely.

So, to clarify, our research is based on NV Energy's 2024 IRP and examines energy and water use from 12 new data center projects.

And these projects drive load growth of 25,590 gigawatt hours by 2033.

We estimate that this translates to cooling water demand of between 5,000 and 10,000 acre-feet per year following that build-out period.

And then data centers also consume water indirectly via electricity generation, and we estimate that this amounts to more than 12,400 acre-feet per year following the buildout.

So if we compare data center water use for cooling at our most efficient scenario to average annual household water use, it's equal to about 15,000 homes.

If we take the same comparison using our medium efficiency scenario, that's closer to 29,000 households.

We can also compare water use via electricity generation to household use, and that's equivalent to about 37,000 households.

-If you could describe it in one word, what would that be, how significant this use of water and electricity is by data centers?

-One word I keep on seeing is "unprecedented."

-Wow!

Okay.

Eric with The Nevada Independent, these topics--water use, energy use--have gotten on the radar of the City of Reno.

The city council there recently voted to extend its moratorium on new data centers into 2027.

As you reported, that vote happened after five hours of public comment.

What are the people and politicians in Reno wanting to happen during this moratorium?

(Eric Neugeboren) Yeah.

So for more than a year, people in Reno have really sounded alarm over the water and energy uses of data centers in The Biggest Little City in Nevada.

And what people want to see over the next year or so while this moratorium is in effect are regulations for new data centers, standards on things like water and energy usage, how this is going to benefit the community, whether these companies are going to have to pay a fee, for example, if they want to reside in the city limits.

All of those things are what the city staff will be researching as they come up with draft regulations on future data center developments.

-When you say having data centers pay a fine, that is so different than how the State has been treating data centers in recent years, correct?

-Yeah.

So for more than a decade, the State has had a tax abatement program for data centers.

And what that essentially means is that the amount of sales and use tax and personal property tax that these big developments have to pay is less because they are a data center.

And it's interesting because when this was first approved in 2015, the definition of a data center is very different than the definition people commonly associate with the data center right now, which is artificial intelligence.

But there are very generous tax breaks being given to very big companies in Nevada right now.

-Okay.

I'll ask you more on that ahead.

But, Erik with DRI, the report that you did, it mentions a growing concern that Nevadans' electricity bills are going to go up if more data centers are developed in Nevada.

How valid is that concern?

-Yeah.

So I would say-- I would clarify that our research does not investigate the possibility in Nevada, and so it's difficult for me to speak to how likely this is in the states.

But I can describe what has already happened in Northern Virginia, which is the largest data center market in the U.S.

And over there, the grid operator, PJM Interconnection, has observed that large data central loads have indeed imposed higher capacity market and transmission costs onto other PJM ratepayers.

And so while it's unclear whether it is a concern in Nevada, it's something that has already played out in Northern Virginia.

-Eric with The Nevada Independent, that's the source of a lot of the politics that are now coming into play, correct, whether Nevadans are going to have to pay more money for their electricity.

What are you hearing from the governor and his opponents in this race for governor in November?

-Yeah.

Governor Joe Lombardo, a Republican, and his likely Democratic opponent in the November General Election, Attorney General Aaron Ford, don't agree on a lot, but they do agree that they do not support any data center developments that might increase costs on regular Nevadans, whether that's water costs, electricity costs.

Their kind of policy positions aren't exactly clear beyond that.

They have said that they support the jobs that data centers create, but the other Democratic candidate for governor, Washoe County Commissioner Alexis Hill, has had a much more comprehensive plan regarding data centers.

She wants to pump the brakes on some of the tax breaks that I mentioned before and really look into if something like data centers can be addressed on a statewide issue rather than city by city.

-You mentioned regulations that the City of Reno wants to try and put in place on data centers.

What regulations currently exist in the state of Nevada for data centers?

-There really aren't many regulations, and one thing that environmental advocates are concerned about is there's no statewide consistency with how to regulate data centers.

And the reason why the City of Reno and some other local jurisdictions are looking to put a pause on data center development and new data center development is because there are no regulations.

In Reno, for example, data centers currently are zoned the same way that warehouses are.

It's not something that is specifically unique to data centers.

And there's an open question of how much can be done on the local level versus the state level to regulate data centers.

One thing that is particularly notable is the fact that a lot of the biggest data centers in Nevada are in Storey County, a very sparsely populated rural county outside of Reno that most famously houses the Tesla Gigafactory.

But regulations and permitting in that county, and in a specific area in that county, are very lax, so it's very easy for data centers wishing to move there to move there.

There are obviously questions on power, if they have enough power, if the state can provide enough power to fulfill these companies' obligations, but regulations are few and far between for data centers right now in Nevada.

-Erik with DRI, what can be done to ensure that ratepayers do not have to pay a higher bill?

Is there anything that these data centers can do themselves in order to prevent that?

-Yeah.

So some folks are now increasingly talking about revising rate classes in an effort to protect other ratepayers from these increased costs or requiring that data centers pay for things like infrastructure upgrades.

Generally speaking, this is not something our research looks at very closely.

-Just to add on to what Erik was alluding to is NV Energy, which is the supplier for these companies' energy, recently submitted a proposal where these large energy consumers, like data centers, would-- it would be in NV Energy's rules that they cannot pass any costs onto regular ratepayers.

And that's something that has to go through a long approval process from the Public Utilities Commission of Nevada, which oversees entities like NV Energy.

But kind of under the existing processes, for any electricity costs to be burden, regular consumers, it needs approval from the Public Utilities Commission of Nevada.

And people I've talked to have said there's a high degree of unlikelihood that the Public Utilities Commission would approve data centers' request to pass energy costs on to ratepayers.

That being said, there aren't any statewide rules prohibiting passing on costs on data centers.

It is possible it would just have to go through a long approval process from state regulators.

And then one other thing that I think is worth mentioning is the fact that even if data center developments and increased power capacity for data centers does not directly pass on to consumers if demand for electricity grows exponentially, as is expected in Nevada, that's going to require transmission and more infrastructure for electricity.

-and Erik with DRI, this is where your expertise comes in with the ability to create all of this energy.

What problems currently exist?

And hypothetically, if every data center that wanted to operate in Nevada could, would the state be able to supply it enough power?

-One striking statistic, we can look at the load growth outlined in their 2024 IRP.

That was a bit more than 25,500 gigawatt hours.

That equals more than half of our state's net generation in 2024.

So this is to say that we're taking on huge energy demand with data centers, and this is at a time when our ability to get new supplies and transmission infrastructure online may be constrained by factors like the interconnection queue, which is just the list of energy projects awaiting connection to the grid.

So according to S&P, Nevada's interconnection queue is among the top 10 longest in the U.S.

with a wait time of about 51 months.

And so what this signals is that it may be difficult to get new supplies online and that data center development may outpace the development of other important infrastructure.

And then with respect to transmission, according to data from NREL, we do not have transmission lines in Northern Nevada greater than 345 kilovolts in higher voltage transmission lines, so 500 kilovolts or higher can be advantageous in that they provide for greater reliability and efficiency as power losses can be reduced.

And there are higher voltage transmission lines in Southern Nevada near Las Vegas, but the North still lacks this infrastructure.

In respect to other challenges, there are lengthy order backlogs, shortages of critical grid components, and potentially also a dearth of electrical trade labor.

So all of these things may constrain our ability to expand infrastructure in a timely manner.

-And companies are well aware of the delays that may happen to get the power that they need to power their data centers.

It's not uncommon for companies to go state to state and see what is the quickest option for them to get online.

And one interesting scenario that we're seeing in Northern Nevada is a company that wants to build a massive data center in Storey County, the region I mentioned earlier.

They want to create their own natural gas power plant.

Basically, they want to say, We know that NV Energy is going to take a while for us to get the power that we need, so we'll just build this natural gas power plant ourselves.

That use of natural gas is obviously worrisome to environmental advocates, because it's not a, quote/unquote, cleaner use of energy, but there are workarounds available, potentially, if companies do not want to simply wait in line for NV Energy to have the capacity they need to build their data centers.

-And Eric with The Nevada Independent, you wrote an article asking, "Have data center tax breaks helped Nevada's economy?"

We've gone over how much they are requiring from Nevada, but what did you find about how much they contribute here?

-Yeah.

It's really an interesting question, because even people at the State that I asked didn't really have a clear answer to that.

The kind of rationale that they gave for these tax breaks being beneficial to the economy are economic estimates that companies provide when they apply for the tax break, not kind of a regular checkup to see if they are doing as much, providing as much tax revenue to local and state governments as they promised at the onset.

So the-- It's really unclear.

And it should be noted that data centers do not provide a lot of permanent jobs.

That's something that is acknowledged even by data center companies themselves.

There are not a lot of full-time workers who are there once the data center is built, but they do provide a lot of construction jobs.

And in Reno, for example, a lot of construction worker unions oppose the moratorium because these data center developments have been such a boon for construction worker employment in Northern Nevada.

-This is a story we will continue to follow.

Thank you both for joining Nevada Week.

-Thank you.

-Thank you.

-Artificial intelligence, or AI, relies on data centers, and its use is growing quickly.

According to a recent report from consulting firm McKinsey & Company, 88% of organizations they surveyed reported using AI in at least one business function.

But what about AI's use in gaming?

A new report from UNLV's International Gaming Institute looks to track AI's progress in the global gambling industry on an annual basis.

We recently spoke with Kasra Ghaharian, editor-in-chief of the inaugural report which found a disconnect between gaming companies and the entities that regulate them.

(Kasra Ghaharian) We did a survey of over 80 gambling companies across the world.

We also surveyed over 110 regulators around the world as well, so giving us this kind of dual insights into what's going on with AI in the industry.

What we found was that regulators expressed they had very little visibility into how AI is being used amongst their licensees, which actually tracked in the data.

So we asked the industry, you know, where is the most significant activity in terms of your AI use?

They said things like back of house, like product innovation, technology, and security.

Customer-facing functions were actually, you know, they were further down the line.

Yet when we asked regulators the same question, they thought customer-facing functions was where all the activity was.

So a definite disconnect there in terms of where regulators think it's being used and where it's actually being used.

-How would you describe that?

Is that alarming or maybe par for the course, given the-- given how new AI is?

-I think the main issue with this is that while regulators express they have little visibility into how it's being used, they have appetite for regulating it.

They think that there needs to be gambling-specific AI regulations.

A lot of them think that these regulations need to be stricter than or on par with broader AI regulations.

So the question is, you know, while there's low awareness of how AI is being used on the ground, there's high conviction in terms of the need to govern it, which I think is a dangerous mix, because if you don't understand why it's being used but you want to regulate it, you might end up with regulations that don't really match what we need to regulate, if that makes sense.

So I mean we've seen some kind of activity around regulatory action around AI.

We're starting to see signals that that might increase in the future.

We did a regulatory scan with this company called Vixio.

So we looked at all of these kind of regulatory action that was going on.

What we found was that activity is kind of concentrated in terms of encouraging or in places mandating the use of AI, automated methods, data for monitoring and detecting at-risk players.

So that was the main area of concentration.

We saw less so in terms of specifically regulating AI.

I think there was only a couple of-- There was only a couple of places we saw specific language around AI, specifically.

Massachusetts has something like prohibiting the use of AI to make platforms more addictive.

New York, just last month, I think, they have proposed language around banning the use of AI for marketing and targeting players.

So we're starting to see signals that there might be more AI-specific regulation in gambling.

-You talked about the regulation currently happening, and I think there are a couple states that were mentioned--Colorado and New Jersey, North Carolina also--that are using it to seek out problem gambling.

When someone is maybe gambling too much, they can identify that and then perhaps step in.

I was surprised not to see Nevada on that list, considering Nevada is looked at as the premier regulator of gaming.

Any insight into where Nevada stands in all this?

-Yeah.

I think you're correct.

I think, you know, Nevada, you know, the Gaming Control Board, the regulator, they're called upon from jurisdictions around the world because they're seen as a leader in this area.

I wouldn't say the lack of any kind of language or action around AI specifically for responsible gambling purposes is something bad.

What I see it as is maybe a philosophy.

So I think maybe, you know, there's two schools of thought, right?

There's on the one hand you could have regulatory action and language specifically calling out the use of AI for responsible gambling.

On the other hand, you could take an outcomes-based approach.

So with that I mean, okay, you're concerned about the outcome in terms of player harms.

So that's what you regulate.

You don't care how your licensees kind of get there to protecting the players, whether it's AI or whether it's some other method, you're concerned with that outcome being met.

And I think that's quite a good approach, because it's maybe a bit more-- And maybe age is better, because technology changes a lot.

So if you're regulating a specific technology, that technology could change or there could be a new technology that comes around.

If you take an outcome-based approach, whatever technology comes around, your outcome-based approach is maybe, maybe a bit more adaptable to those changes.

-What are some of the, you call them "AI incidents" in the report, that stand out to you when there is harm that comes from the use of AI in gaming?

What did you find?

-Yeah.

So we, we thought it would be nice to track any AI-related incidents.

We're doing the report on an annual basis, so we thought year over year we might be able to track these incidents, see if there's an increase in incidents, see if there's an increase in any specific types of incidents.

So we looked at these publicly-available databases.

For example, there's one called the AI Incident Database.

I think it's run by a nonprofit.

But you can look in these databases, and you can filter for kind of like gambling specific ones.

So that's what we did.

We found like most of the incidents that had been logged on these databases were around deep fakes, so using deep fakes to promote illegal gambling websites in various jurisdictions around the world.

So you know, people creating, you know, your favorite celebrity promoting some gambling website to try and get people to, you know, gamble on them.

So that was one of the emerging uses of AI.

-There was another one out of Reno, though, and that was with facial recognition.

And I think the-- it misidentified someone and led to an arrest?

-Yeah.

You know, and this, this-- I think that incident-- Computer vision is only just starting to be used, I think.

I don't think we're seeing kind of prevalent use of the technology as much as it could be.

There's various reasons for that, but I think that does highlight, you know, the need for governance.

We're seeing that the industry is maybe training a bit in terms of their governance, practices, and guardrails.

So this could be why we saw an incident like this happen.

But you know, as I said, these are public repositories.

They rely on, you know, stakeholders, operators, journalists, the public logging these incidents, so that could be one of many.

-Many, right.

Because the casinos themselves are probably not going to report themselves.

-Yeah.

-What about the gaming companies' ability to regulate themselves, their governance?

How prevalent is that of AI in their companies?

-Yeah.

This was probably like the key finding of the report, I think.

So, as I said, we surveyed over 80 gambling companies.

These spanned land-based operators, online operators, suppliers as well, you know, online and land-based suppliers.

And we asked them various different questions, but we created this AI maturity index across four dimensions.

So we asked them about their AI strategy, you know, do they have one?

How developed is it?

Is it actively guiding their initiatives?

We also asked questions about their infrastructure, their AI expertise, and we also asked them about their governance.

Do they have responsible AI or AI governance procedures in place?

So those were the four dimensions: strategy, infrastructure, expertise, and governance.

And we found a big gap in terms of how they scored on AI strategy and how they scored on governance.

I think it was about a 30-point gap, actually.

So what that tells us is that these industry players have high ambitions.

They want to adopt the technology to help them with cost efficiency, revenue generation, things like this, yet they don't have the same appetite to put the guardrails in place so that the technology is governed in a responsible manner.

-How do you even get there then?

And is this not hiring the right people within the AI sphere?

-Yeah, it could be.

We asked that question, actually.

So, you know, there's very few companies that have dedicated AI governance roles, which is dissimilar to what we see in other sectors.

For example, financial services, you see some of these companies--JP Morgan, Capital One--they have individuals dedicated to AI governance.

They even have AI governance teams.

We're not seeing that in the gaming industry yet.

I think that might change.

You know, the gaming industry has spent decades kind of establishing frameworks for things like anti-money laundering, responsible gambling, and they've done an excellent job and they've gained trust from regulators and the public from that activity.

So I think the same thing will probably happen with AI.

I think we'll start to see the responsible AI VPs or departments emerge in the industry.

-All right.

Kasra Ghaharian with UNLV, thank you so much for joining Nevada Week.

-Thank you.

My pleasure.

-And thank you for watching.

For links to the reports discussed from Desert Research Institute or UNLV, go to vegaspbs.org.

And we'll see you next week on Nevada Week.