But who decides where will they be installed?

In our two previous articles on Artificial Intelligence data centers, which you can read here and here, we discussed whether Puerto Rico should enact specific rules for data centers before the first permit application arrives. This question was partially answered on October 15, 2026, when Representatives Jerry Nieves Rosario (PNP), Luis J. Jiménez Torres (PNP), and Jorge “Georgie” Navarro Suárez (PNP) filed the “Law for the Development of Computing and Artificial Intelligence Infrastructure of Puerto Rico,” H. Bill 1523. It was assigned to the House Government Committee. This is not yet a law.

This is not the first bill to address data centers in Puerto Rico. The Puerto Rico Incentives Code (Law 60-2019) already recognizes electronic information processing centers, cloud computing distribution, and “development service centers for data processing and storage” as eligible activities. What H. Bill 1523 does differently: it is the first bill that ties incentives to electric service conditions for the first time.

We read it in full. The bill speaks extensively about incentives and electricity, but says little about where centers would be built or how much the public could weigh in on them.

Below, Farrant Explains H. Bill 1523.

What does it propose?

Section 2 of the Bill establishes as public policy to “promote the establishment and expansion in Puerto Rico of data centers and computing facilities for artificial intelligence, as a high technological value industrial activity, and the export of their services,” provided that costs are not transferred to other electrical grid customers, that centers have their own capacity to generate energy under insufficiency conditions, that water is protected, and that verifiable benefits for the country exist.

The Bill seeks to implement this public policy at two levels.

Level 1: rules for all centers of 5 MW or more. These apply with or without incentives to any “Large Load Data Center” that requests new or expanded electric service (Sec. 8). One megawatt (MW) equals approximately the demand of hundreds of homes. These centers would have to:

• Have own firm capacity of at least 100% of their operating load, certified by the Energy Bureau (“Bureau”), and shall not operate above that certified capacity.
• Not draw energy from the system generation during reserve alerts, load sheds, and emergencies.
• Pay for all studies, interconnection, and electrical grid improvements attributable to their service.
• Purchase energy from the grid only within blocks awarded by competitive solicitation (Sec. 11).
• Use closed-loop cooling, by air, with reused or non-potable water. Potable water from the Puerto Rico Aqueduct and Sewer Authority (“AAA”) may only be used up to the limit that the AAA establishes, in consultation with the Department of Natural and Environmental Resources (“DRNA”) (Sec. 7(a)).

To aggregate loads, installations of the same person or its affiliates located on the same property, contiguous properties, or served by the same substation will be counted. The Bill excludes telecommunications and submarine cable landing stations from this definition (Sec. 3(l)).

Level 2: the price of incentives. The person or entity that wants to receive an incentive decree under the Incentives Code will have to assume the “Megawatt Commitment” (Sections 4 through 6 and 14 through 17), which establishes that:

• In addition to their own firm capacity, maintain a reserve for the grid of at least 50% of their operating load, available to inject when the operator requests it. Compensation cannot exceed the avoided system cost.
• Supply at least 50% of their consumption with additional renewable energy by the sixth year, with a PUE (“Power Usage Effectiveness”) design no greater than 1.3. PUE measures how much total energy the center spends for each unit consumed by computing equipment.
• The center will be designed to resist Category 5 hurricanes and operate isolated from the electrical grid.
• Reserve at least 5% of their computing capacity—or an equivalent portion of space, energy, and cooling—at cost, for UPR, government, and entrepreneurs, under the “Sovereign Computing Bank” (Sec. 14).
• Sign an agreement with the host municipality to contribute 25% of property and municipal patent contributions that remain exempt. Section 15(b) clarifies that this contribution “will constitute a contractual obligation of the concessionaire and not a municipal contribution.”
• Report annually to the Puerto Rico Department of Economic Development and Commerce (“DDEC”) and the Energy Bureau their total energy consumption, energy drawn from the grid and injected to it, operator requests attended, their PUE and WUE (“Water Usage Effectiveness”), percentage of additional renewable energy, use of the Sovereign Computing Bank, and direct employment (Sec. 17(a)).

Existing centers could expand with a fixed rate of 2% on export income attributable to the first 20 MW added, for 10 years, and sales and use tax exemptions (Sections 9, 20, and 21). If the added load reaches 5 MW, Level 1 rules would apply only to that incremental load, not to base load.

How to obtain a decree. DDEC, in coordination with the Bureau, would award by competitive solicitation blocks of system capacity and the preferential right to lease properties and interconnection points (Sec. 11). The DSEC Secretary may designate “Computing and Energy Zones” on properties with existing or planned transmission infrastructure, including Fomento Industrial lands and Puerto Rico Electric Power Authority (“AEE”) lands (Sec. 12). Projects in those zones, and expansions with decrees, would process permits under the special process of Section 6070.69 of the Incentives Code.

The Energy Bureau would have 180 days from the law’s approval to adopt regulations. Until that occurs, the grid operator could not approve new or expanded service for these centers without prior authorization from the Bureau (Sec. 8(c)).

What the Bill does address

The bill addresses the problem described in its statement of purpose: Puerto Rico’s grid has no surplus power for AI data centers. According to the statement of purpose, peak electricity demand in the summer of 2026 hovered around 3,234 MW, against available generation of about 3,200 MW, and there were 15 manual load sheds between July and August. The record electricity rate of 33.86 cents per kWh took effect on October 1, 2026, which is nearly double the U.S. residential average of 18.3 cents per kWh.

This harsh reality of our electrical system was felt this very week, the week this article comes out. On Tuesday, October 27, according to El Nuevo Día, LUMA Energy warned that more than 100,000 customers could suffer outages from generation shortfalls during the night, after about 270 MW was lost through the shutdown of Unit 5 at the San Juan plant and limitations at Unit 2 of the Aguirre plant. At 8:00 p.m., LUMA’s portal reported 140,841 customers without service because of this shortfall. According to a LUMA spokesperson, even with both units back online and residential batteries feeding power into the grid, the projected reserve would be a mere 20 MW. As we write this paragraph, the power is out at our home.

Screenshot of LUMA Energy’s portal (lumapr.com), taken by us on Tuesday, October 27, 2026, at 8:26 p.m. It shows an available capacity of 2,612 MW and a forecasted load of 2,737 MW, resulting in a total reserve of −125 MW.

Faced with that reality, the Bill does 3 things that no local instrument does today:

1. Prohibits transferring costs to other customers (Sec. 8(a)(4)).
2. Requires that centers bring their own energy instead of competing for existing capacity.
3. Restricts potable water for cooling and orders reports and financial guarantees per megawatt, in favor of the Government, that would be executed in case of noncompliance (Sec. 8(b)(7)).

What the bill does not mention

• Citizen participation. It contains no requirements for public notification, holding public hearings, or community intervention on where a center would be built. The only local mechanism the Bill mentions is the municipal contribution of Article 15. Here is an important detail: if the municipality does not sign the agreement with the entity within 60 days, Sec. 15(c) allows DDEC to issue the decree with that contribution as a condition in favor of the municipality. Therefore, the bill allows DDEC to substitute municipal will. It remains to be seen whether this is compatible with the municipal autonomy protected by Law 107-2020—whose Sec. 1.007 the bill itself invokes—since, to the extent we could verify, we are not aware of any case where this controversy has been litigated. Additionally, for decrees, Law 60 already provides that the DDEC Secretary’s decisions on the approval of an incentive application and its content are final, without judicial or administrative review or other remedy, and that once the concession is granted, no municipality or agency may challenge its legality (Sec. 6020.01(k)). The bill does not change this rule, as Section 18(c) maintains it “without prejudice.” This could complicate a challenge based on municipal autonomy.
• Transparency. DDEC would publish reports from centers with decrees, except confidential commercial information. Centers of 5 MW or more that do not have a decree would only have to report their water and energy consumption to the Bureau, and the bill only says that the Bureau will protect confidential commercial information (Sec. 17). It does not order publication of these reports. Nor does it define what “confidential commercial information” is, which leaves open the possibility that consumption data—which is of public interest in a system in crisis—could remain outside public reach by administrative decision.
• Environment. It does not exempt from environmental laws (Secs. 7(c) and 13(b)), but neither does it reinforce them. It remains silent on the heat a center releases into the environment and does not establish a consumptive water usage cap, only the duty to report WUE and annual water consumption (Sec. 17(c)). On the other hand, the potable water consumption limit will be set by the AAA, that is, the entity that sells water, “in consultation with” the DRNA.
• Permits. Section 13 accelerates permit approval, but it is worth being precise about how it does so. Its subsection (b) states that substantive requirements are not altered nor exempts from environmental compliance. However, the Section creates a legal fiction by ordering these projects to be processed “as if they were Priority Projects in Opportunity Zones.” That is, it could happen that the special process is activated even if the property is not formally designated in an Opportunity Zone. The question that remains unanswered here is one of time, not substance: will it be possible to rigorously evaluate and assess the environmental impact of a project within the abbreviated timelines that this process entails?

The Bill has a drafting error: it gives two different names to the same law.

Section 1 christens the Bill as “Law for the Development of Computing and Artificial Intelligence Infrastructure of Puerto Rico.” However, Sections 20(b) and 21(g) with amendments to the Incentives Code, refer to the “Megawatt Pact Law for the Development of Computing and Artificial Intelligence Infrastructure of Puerto Rico.”

These are two different names for the same law. And, since the new sections proposed here depend on that referral to define their terms and conditions, the error leaves these sections citing a law that does not exist. This is an error that can be corrected during the legislative process, but we wish to point it out now so the correction is made.

The clash between DDEC and the Bureau that the Bill creates

According to our reading, the Bill divides decisions about centers between 2 agencies with different mandates, and that division merits questions at public hearings.

Section 11(a) provides that DDEC “in coordination with the Bureau,” will award through public competitive solicitations, by megawatt blocks: (1) the preferential right to lease available properties and interconnection points in Computing and Energy Zones, and (2) the system capacity blocks for large load centers to purchase energy outside a reserve alert. Regarding energy blocks, the Bureau will grant “the corresponding authorization” and, before each solicitation, will certify the available reserve margin and maximum block size. Additionally, it will certify each center’s own firm capacity (Sec. 8(a)(1)), authorize case by case while adopting regulations (Sec. 8(c)), and has jurisdiction to impose penalties (Sec. 8(a)(6)).

On the other hand, according to the Bill’s text, a large load center cannot purchase energy from the grid outside an alert without a block that the Bureau authorizes (Sec. 8(a)(3)). However, DDEC—the agency whose mandate is to attract and retain investment—is the one that designates the Zones (Sec. 12(a)) and awards properties. The factors enumerated in Sec. 11(b) to evaluate proposals are the reserve offered, renewables, efficiency, investment, employment, and contribution to the Sovereign Computing Bank. It mentions nothing about community acceptance of the Project or environmental impact of the site, although the list includes “among other factors.”

This implementation design decision is not justified anywhere, and leaves a practical question unanswered. The text requires “coordination” between DDEC and the Bureau, but what happens if they disagree? For example, it could occur that DDEC awards a property to a center and the Bureau does not authorize the energy block that center needs. This will need to be asked and clarified at public hearings, along with another question: why should the Bureau—not DDEC—conduct the solicitations, given that the Bureau is the regulator that exists to protect ratepayers, with DDEC in a role of promoting investment?

Section 4(e) only leaves 1 door for incentives

Section 4(e) provides that, from the law’s effective date, no decree shall be granted under any chapter of the Incentives Code that covers totally or partially the operation of a Large Load Data Center, except as Qualified Computing Center (Sec. 4) or as expansion of an Existing Data Center (Sec. 9). This rule does not apply to decree applications filed before the law’s effective date. Likewise, Section 23(a)(8) exempts from sales and use tax (IVU) and state levies the equipment of an Exempt Business that operates a Qualified Computing Center with a decree.

Meanwhile, Level 1 rules apply to all centers of 5 MW or more “whether they have a Decree or not” (Sec. 3(l)). Therefore, a center that does not want to assume the Megawatt Commitment will not receive incentive tax breaks, but would still have to comply with Level 1. It can also compete for the capacity blocks it needs to purchase energy from the grid, and awarding does not carry a decree (Secs. 8(a)(3) and 11(d)).

The result here is that, in practice, the tax incentive becomes tied to a single package. Whoever rejects it will assume Level 1 without incentives. Whoever accepts it, will additionally assume the reserve for the grid, additional renewables, the Sovereign Computing Bank, and the municipal contribution. It would be useful to ask at public hearings whether this design was intentional, or if it is an unintended effect of provisions drafted separately, and whether what is required in Level 2 is proportional to what is offered.

The international comparison is different than what the statement of motives says

The bill presents in its statement of motives the cases of Ireland, Texas, and Singapore, and then notes that this proposed law “adopts the best of those experiences and adapts them to the reality of Puerto Rico […].” However, the reality is more nuanced. Let us see:

1. Ireland: Puerto Rico would be more lenient. Ireland’s Commission for the Regulation of Public Services (CRU) adopted its connection policy for large users on December 12, 2025 (CRU2025236). This requires that data centers of 1 MVA or more supply at least 80% of their annual demand with additional renewable energy generated in Ireland, within six years, and that sites of 10 MVA or more provide dispatchable generation or storage, with separate metering, capacity equal to their maximum import capacity, and mandatory market participation. On the other hand, Puerto Rico would require 50% by the sixth year (Sec. 6(a)). It would be prudent to ask how the 50% figure was reached and why the 80% figure was not copied.
2. Texas: Puerto Rico would be stricter. SB 6 was signed in Texas on June 20, 2025 and applies to loads of 75 MW or more. This requires covering interconnection costs, proving land control and financial solvency, and accepting disconnection during firm load shed events. However, this law does not require self-supply, as Puerto Rico does.
3. Singapore: Puerto Rico copies its mechanism. Singapore assigned 200 MW of new capacity to four operators in August 2026 through its second competitive solicitation (Data Centre – Call for Application), with the requirement that more than 50% of capacity be fed from green energy sources and with PUE of 1.3 or better at full IT equipment load, plus liquid cooling technologies and 100% efficient IT equipment. The PUE threshold matches almost exactly with that of Sec. 6(b) of the bill, and the green energy percentage is comparable to the 50% of Sec. 6(a). More importantly: the competitive solicitation of Sec. 11 is precisely the mechanism Singapore uses. In that aspect, the bill does not improvise, it copied Singapore.

With this in hand, we can say that, regarding own firm capacity, H. Bill 1523 is more demanding than Texasand comparable to Ireland. Regarding renewable energy use, it is weaker than Ireland. And, regarding efficiency and allocation mechanism, it runs parallel with Singapore. It is not “the best of each model,” as the statement says, but a mixture without explanatory analysis.

Where does this bill leave the proposed Permitting Code?

Section 13 mandates that projects in Computing and Energy Zones, and expansions with decrees, process permits under the process of Section 6070.69 of the Incentives Code “as if they were Priority Projects in Opportunity Zones.” That process already exists in Law 60: notification includes notice in 2 newspapers and a sign, agencies and municipalities have 10 business days to comment (and if they do not, the proposal is understood favorable), the environmental document is evaluated in 20 business days and judicial review must be requested within 20 natural jurisdictional days.

On the other hand, the Permitting and Planning Code (S. Bill 1173) approved by the Senate (which is not yet law) considers strategic the Priority Projects in Opportunity Zones that comply with eligibility of Law 60 (Sec. 2.06(d)). These strategic projects would be in the category of “Priority Socioeconomic Impact Projects,” to which Sec. 12.40 of the proposed Code applies a special process. They are filed directly with the Central Permit Office, although the municipality may have delegated jurisdiction; notification is made through a presentation sign; agencies and municipalities have 20 natural days to issue recommendations (10 more if the environmental analysis is complex), and the affected municipality, 20 business days for its formal consultation; the final determination is issued in 10 natural days after completing recommendations; and judicial review must be requested within 20 jurisdictional days, without work stoppage unless a court orders it to prevent irreparable harm. If the “as if” of Section 13 suffices to meet eligibility of Law 60, a data center could be considered under this route.

Here we want to clarify something about Opportunity Zones, which are a federal tax designation. According to federal guidelines, Puerto Rico’s original designations end on December 31, 2027, one year before those in the rest of the United States. The new map will depend on nominations and will not automatically cover the entire island. For this Bill, that change matters less than it seems: as Section 13 uses the formula “as if,” activating its process does not require the property to be actually in a federally designated zone. However, the map could matter if one wanted to additionally access the strategic route of the Permitting Code, since Law 60 eligibility requires a federally designated zone and committee designation.

How would this bill treat one like Seabase?

A cluster of 10 to 20 MW like the one Seabase considered in our recent article would be covered, since loads aggregate. Seabase told us they evaluate combining computing with new generation and batteries, which fits with the own firm capacity requirement. Therefore, it seems that, under this bill, if it becomes law, a development like Seabase could obtain permits and their corresponding tax incentives.

Details to verify

• Exit from solicitation. An applicant that fully self-supplies, is not located in a Computing and Energy Zone, and does not purchase energy from the grid can request their decree at any time, without solicitation (Sec. 11(c)). However, they do not get exempted from the Megawatt Commitment nor from maintaining the interconnection necessary to inject their reserve.
• Fiscal effect not stated. The statement of motives says that the bill’s fiscal effect will need to be estimated during the legislative process. It is necessary that this figure be presented before voting, since the bill reduces the tax rate from 4% to 2% for incremental export income and adds IVU and levy exemptions. In Puerto Rico’s fiscal context and fragile economy, someone will have to pay that difference.
• Special Rates. The Bill does not establish that data centers will pay special water and electricity rates for high consumption, contrary to what is happening in several states and the European Union, as we mentioned last week.
• Pending Regulations. Almost everything operational is relegated to Regulations that the Bureau, DDEC, and AAA will be required to adopt within 180 days after the law is approved. Until then, Sec. 8(c) puts the Bureau authorizing case by case.
• Staggered Effective Date. Sec. 28 provides that decrees as Qualified Computing Center and amendments to the Incentives Code can only be granted once the regulations of Sections 8 and 24(a) go into effect. That is, even if the law were approved today, it would really begin to operate in 180 days, or when regulations arrive.

What can you do?

The bill has just begun its legislative process, so there is time to learn more and weigh in. Since approvals of rights cannot be challenged (Sec. 6020.01(k) of Law 60), the moment to participate is now, in the Legislature and regulations.

You can follow this project on SUTRA, submit testimony if the Government Committee holds hearings, and contact your legislators.

After reviewing this initial version of the Bill, we believe it is important that the following three things be considered for review:

1. That the Bureau hold public hearings before designating a Computing and Energy Zone. Sec. 12 currently allows the DDEC Secretary to designate them in consultation with the Planning Board, the Bureau, and the AEE, without participation from affected communities.
2. That the 60-day clock of Section 15(c) be eliminated or amended so that DDEC cannot unilaterally impose a contribution on a municipality that refused to negotiate it.
3. That the fiscal effect figure of the project be published before its final vote, not after.

If you believe the bill should include binding community participation, now is the time to ask for it. Also, you can subscribe to Farrant Explains, where we will be covering the advances of this bill.