Memphis, TN Negotiated a Substation and Collected $3,259,282. Now It Wants to Stop and Write its Data Center Rules.

Memphis has its first real number for what a data center gives back: $3,259,282, collected in fiscal 2026 under a rule passed a year ago. On August 18 a plan to spend it across nine neighborhood programs went to the Council.

In July 2024, Memphis Light, Gas and Water — MLGW, the city-owned utility — told the Council that xAI would occupy the old Electrolux plant in southwest Memphis, and laid out what the company would pay for: its own 150-megawatt substation, metered city water rather than aquifer wells, taps onto existing mains. None was required by the code. All was negotiated.

The same meeting carried a draft law that would freeze new data center permits for up to a year. Read against that history, it is not really a pause. It is Memphis deciding to stop carrying the risk of negotiating these terms one deal at a time. Nothing gets approved until the city and the people who live around these sites settle what they want from a data center — who pays for the power lines, who pays for the water, what the neighbourhood gets — and until that answer sits in the code rather than in a contract.

At a Glance

• The money: $3,259,282 collected in fiscal 2026, proposed for nine programs, all of it to be spent within five miles of the site.
• Where it comes from: Ordinance 5953 earmarks 25% of the city property tax collected on the site. No extra bill to the company.
• Power, as briefed: The developer would build a 150-megawatt substation, about $24 million, to be credited back through its bill.
• The new question: Study item 12 would look at making developers, not ratepayers, carry grid costs.
• Status: The freeze has no first reading and no number. Memphis ordinances take three readings.

The money the city actually collected

Memphis passed Ordinance 5953 on August 19, 2025; the Mayor signed it September 22. The city administration sponsored it, over the signature of Chairman J. Ford Canale.

The rule takes "25% of the real and personal property tax revenues collected by the City on the AI Property in the most recent year" and confines it to five miles around the site.

Be precise about how this works. Nobody sends the company an extra bill; it pays ordinary property tax. The rule redirects a quarter of that to the neighborhoods around the plant instead of the citywide budget. The site funds the benefit, but this is a change in where money goes, not a new charge.

Here is the first year, as proposed, shaped by 250 resident survey answers gathered between July 2025 and May 2026, 74% from ZIP 38109.

• $1,400,000 — home repairs. Roofs, heating and cooling, insulation, windows.
• $500,000 — paid cleanup crews. Wages for litter removal and clearing illegal dumping.
• $434,282 — grants to nonprofits. Violence prevention, youth mentoring, after-school programs, job training, food aid. At least $50,000 goes to health groups.
• $330,000 — demolition and board-up. Clearing a backlog of derelict buildings.
• $300,000 — litter and illegal dumping. Bins, cameras at dump sites, contracted removal, vacant lot upkeep.
• $100,000 — teaching about the environment. Run through the libraries.
• $100,000 — air quality testing. Three months of nonstop monitoring, not duplicating the county's.
• $75,000 — Memphis City Beautiful. Gear for volunteer cleanups.
• $20,000 — cooling devices. Window air conditioners, box fans, furnace filters and air purifiers.

Two lines moved between the July and August versions. Litter and dumping fell from $334,282 to $300,000; grants rose from $400,000 to $434,282. The total is identical.

Next year the pot grows: the July deck says the FY27 plan adds a second site, on Tulane Road, with that budget due in October.

The grid: who fronts the money, and who ends up carrying it

MLGW briefed the Council on July 9, 2024. That briefing is the fullest public account of who pays for what at this site, and almost every line of it is written in the future tense. The figures are a plan, not a receipt.

The old plant came with 8 megawatts available, a rounding error for a modern computing campus. MLGW said it would lift that to 50 megawatts for $760,000 of its own money. The real jump was the third step, and there the utility drew a line: "Developer will pay for construction of 150MW substation." It put the price at roughly $24 million and labelled the substation "Future (2025)."

A 150-megawatt load is not a routine connection. MLGW's system normally peaks near 2,000 megawatts in winter and 3,000 in summer, and the utility said this project would add about 150 megawatts to those peaks — five percent of a summer peak, seven and a half of a winter one. Loads that size need sign-off from the Tennessee Valley Authority, the federal power supplier, and that was still pending. Joining the demand response program was called a practical requirement: contractual agreements with large customers to cut consumption when the grid is stressed, on terms the Authority sets and MLGW coordinates.

So the headline reads well: the company builds its own substation and ratepayers are held harmless. But the same slide adds a sentence that changes the arithmetic. MLGW "will provide a 'margin allowance' on monthly bill to recoup cost of construction of the substation." The developer fronts the $24 million, then earns it back as a credit against its power bill. The capital risk sits with the company. The eventual cost does not.

Gas and water were simpler. The plant sits in an industrial park built for heavy users, alongside a Tennessee Valley Authority power plant, a city wastewater plant and Nucor Steel. It would draw on existing water and gas mains, where the developer had already paid for the tap. On both, MLGW recorded "no capital cost to MLGW."

The water it agreed not to take

Water was more delicate, because Memphis drinks from an aquifer and data centers use a great deal of it for cooling. MLGW put the alternative on the record plainly: "As other entities have done in the past, xAI could have made application to the Shelby County Water Board for a permit to install wells and use unmetered water for their plant." Drill your own wells, meter nothing, and the city has little say.

That is not what happened. The utility says it proposed metered city water as "the right first step," the company agreed, and it then "quickly agreed that exploring other options for cooling water was in the best interest of the company and the community." The added draw: roughly 1 million gallons a day against an MLGW average of 150 million.

The better long-term answer was recycled water. Memphis treats its sewage and sends the effluent to the Mississippi, and that graywater can cool an industrial plant instead of going downriver. The catch, MLGW said, is that the city's effluent "contains too many impurities to be used without additional treatment." That meant a treatment plant one step beyond what the city ran, and MLGW said the design and cost work was only getting under way.

Two years later that plant has surfaced on the Council's calendar. A June 23, 2026 committee item is titled "Update regarding the building of the Grey Water Facility at the xAI Campus," requested by Green — the same Green who now co-sponsors the freeze. That line is the only record of the facility we located after 2024, and it does not say whether construction has begun.

Why Memphis wants to stop negotiating

Read the substation, the metered water and the graywater plant together and a pattern emerges. Each was a negotiation, and none was required. The city got them because a utility with reason to land a very large customer worked out terms with it, one item at a time, before any of it reached a public rulebook.

That is the risk the city is declining to take again. Goodwill is not a policy, and the terms a utility wins from one applicant are not the terms it can count on from the next. It would halt nine kinds of approval for up to twelve months: rezonings, planned developments, special use and conditional use permits, site plans, and building, grading and land disturbance permits, plus a catch-all for "any other discretionary land use approval." The city would keep accepting paperwork for "docketing and completeness review" but could not act on it, and deadlines are "tolled," so the clock stops. Filing early buys nothing.

What matters is what gets drafted during the silence. City planners would work with a study group that includes MLGW, and the draft tells it to "evaluate, at minimum," seventeen topics. Most are the ordinary furniture of a zoning code: buffers from homes and schools, noise limits, water use, sewage, fuel storage. Two are not, and the first is why this matters beyond Memphis:

Allocation of infrastructure costs to developers to ensure public utility customers are not responsible for costs attributable to new high-demand facilities.

That is item 12, aimed squarely at the arrangement above. Under the 2024 plan the developer pays for the substation and is then made whole through its bill. Item 12 asks whether the next company should keep that cost permanently. It is a question about price, not setbacks, and it would be settled with the utility at the table.

Item 16 runs alongside it, asking the group to consider a "potential capital expenditure fund for the benefit of the City of Memphis." The draft is silent on who would pay into it, but next to item 12 it suggests money flowing in from projects rather than redirected from tax the city already collects — the reverse of Ordinance 5953.

Two further topics supply the machinery. Item 11 covers substations and transmission improvements. Item 2 would classify data centers by size, electrical demand and operational intensity, which has to exist before the city can treat a 150-megawatt campus differently from a server room above a bank. The list also reaches cooling and water use, where the graywater precedent could harden into a standard. And item 15 asks for "public notification and community engagement requirements" — the residents who filled in 250 surveys about spending the first $3,259,282 would get a fixed place in setting the next deal's terms, rather than being consulted after the fact.

There is a fiscal backdrop. The same meeting brought a credit rating downgrade notice on the city's sewer revenue bonds, and a proposal to issue up to $350,000,000 in refunding bonds to refinance outstanding general obligation debt. A city watching its utility debt get dearer has reason to ask who pays for the next substation.

Where the record disagrees with itself

The ordinance will not say xAI. Ordinance 5953 never names a company; it describes its land by survey. Yet the city posted that ordinance in a file named "xAI-Allocation-Ordinance47043091-1.pdf", under a link labelled "Artificial Intelligence Ordinance." The file names the company; the link and the law do not. Nor does anything we reviewed tie those surveyed tracts to the Electrolux building, so the link rests on the city's later shorthand and a matching district label.

The abatement question. MLGW told the Council the plant was "constructed using a 2010, $97 million State of TN grant, a $3.1 million state training grant, and a 15-year local property tax abatement of 75%." The community benefit money is a share of tax actually collected, so an abatement still in force would set the size of every future payment. Nothing we reviewed says whether it still applies.

The 1% rule nobody can find. The July deck says the "Ordinance requires a minimum allocation of 1% for environmental education." The ordinance never mentions environmental education, and the only share it names is the 25%. On the deck's own arithmetic, 1% would be $32,592.82, and the $100,000 allocated is 3.07 times that.

The sponsors of the freeze. The city's posted agenda credits "Smiley, Green and Swearengen-Washington." The draft law's own sponsor block reads: "Chairwoman JB Smiley, Jr. / Jana Swearengen-Washington / Jana Swearengen-Washington / Jerri Green." Swearengen-Washington appears twice, and Smiley is called "Chairwoman," though Swearengen-Washington chairs the Council and Smiley represents Super District 8-1.

The street and the version. The ordinance's legal description reads "PAUL R. LOWRY ROAD," the August plan "Paul R. Lowery Road," the July deck "Paul R Lowery Rd." And the link labelled "Data Center Temporary Moratorium Ordinance v2" opens a file named v3, with no version marked inside.

Timeline

Why It Matters for Site Selectors and Developers

Memphis is moving from deals to rules. The substation, the water choice and the grey water plant were negotiated separately. Item 12 would study putting cost allocation in the code; if it gets there, the next applicant inherits the rule without the bargaining room. Ask which regime a city offers you, and whether a credit like the margin allowance survives the rewrite.

The Risks and Obstacles

Almost none of it is settled. The freeze has no number and no first reading. The spending plan needs a budget change and new contracts, and no minutes show what the Council did.

The 2024 utility plan is a plan. It was written forward, and we found nothing later confirming the substation was built or the margin allowance began. Watch for an MLGW report saying it is in service.

What to Watch

• Whether item 12 becomes a hard rule or stays a study, and whether it reaches existing margin allowances.
• The status of the 2010 abatement. If it still runs, it caps the size of every future payment.
• The September 1 and 15 agendas for a first reading.

This article is factual background, not legal or financial advice.