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As many communities are saying ‘no’ to data centers, Otero County, New Mexico county says ‘let’s talk.
There was a time, not all that long ago, when putting a new data center on the map was a fairly quiet affair. Find a decent site near transmission, make sure there’s enough water and a reasonable tax environment, shake a few hands at the county courthouse, and you could move from concept to groundbreaking without anyone outside the industry noticing.
That time is over.
From Maryland to Nevada, projects that would once have slipped under the radar are now showing up as front-page fights: neighbors packing public hearings, advocacy groups demanding moratoriums, local officials fielding angry calls about water, power bills, truck traffic, and noise. The same facilities that tech companies like to present as “invisible infrastructure” have become very visible symbols of the AI boom and the strain it’s putting on local resources.
Meanwhile, the buildout hasn’t slowed. Hyperscalers and cloud providers are racing to add capacity, with executives talking in the same breath about trillion-dollar AI investments and unprecedented demand for power. The result is a collision between a frantic infrastructure push and communities that feel blindsided by its footprint.
Site selection teams are caught in the middle. The spreadsheet still has the old columns including land cost, PUE, latency, and utility interconnection, but the rows have changed. It isn’t enough to model megawatts and megabits. Developers now have to ask a different set of questions: Can this jurisdiction actually say yes? Will that yes survive the next election? And does anyone in the county building understand what they’re asking for?
For site selectors, developers, and municipal leaders reading Data Center Digest, this isn’t an abstract debate. It is the difference between a project that gets built and one that dies somewhere between the utility study, the water hearing, and the county commission agenda.
Away from the big, well-known hubs, some places are trying to answer those questions before a single NDA gets signed. One of them is Otero County, New Mexico.
On paper, Otero doesn’t scream “next data center frontier.” It’s a mostly rural county in southern New Mexico, wrapped around the city of Alamogordo and climbing up into the Sacramento Mountains. The nearest major metro is El Paso, about an hour and a half down the road. But county officials have been quietly retooling how they talk about power, water, land use, and incentives, specifically with large digital infrastructure in mind.
There is also history working in its favor, of a particular kind. Otero County has spent the better part of a century at the leading edge of whatever the country decided mattered most. The first atomic device was detonated at the Trinity site on what is now White Sands Missile Range. The rockets and high-speed test flights that opened the space age were flown over this basin, and the training ranges that made those milestones possible still ring it today. Each of those arrived as the strategic technology of its moment, and each needed room, power, and a community willing to host the buildout. AI computing is simply the current entry on that list, and the power and water it demands are the same kind of nation-scale infrastructure this basin has been asked to carry before.
The shift started with something most people outside the County Commission Chambers will never read: a formal resolution by the Board of County Commissioners. In it, the board does not just muse about “economic development.” It comes right out and says Otero is interested in data centers and advanced energy projects, and it authorizes the county attorney’s office to field site selection questionnaires and explore potential deals. None of that framework is finished. The county is still writing and adopting the ordinances that will govern large energy and water projects, and its leaders are candid that the work is underway rather than behind them. What they have settled is the direction: a decision to invite this kind of investment, and to build the rules for it deliberately and in the open, before a specific developer forces the question.
“Our commission has been explicit,” said R.B. Nichols, county attorney for Otero County. “They’ve said: we are interested in data center and advanced energy projects, and we want the legal framework prepared so a serious developer can get straight answers instead of vague assurances.”
That may sound like inside baseball, but it matters. In a lot of places, the first time “data center” shows up on the agenda is when a developer files something. Suddenly everyone is improvising, from the officials, residents and even the utility company. In Otero, at least on paper, the county has started having that argument with itself early. It has signaled that this is a category of project it’s willing to consider, told its lawyer to come to the table prepared, and begun writing the policies that would govern it.
The next thing that stands out is what Otero doesn’t have.
Unlike many counties on the receiving end of suburban spillover, Otero does not run on a wall-to-wall zoning map in its unincorporated areas, and even as it adds targeted ordinances it has said it does not intend to adopt comprehensive burdensome zoning. There are no color blocks that say “industrial here, but not there,” no special-use districts that require every large project to fight its way through multiple rounds of public hearings. Outside city limits, land use is governed by a mix of state law and specific county ordinances, not by a classic zoning code.
That sounds like a technicality until you put yourself in a developer’s chair. In a typical exurban county, a large, power-hungry facility on private land almost always needs a rezoning, a conditional-use permit, or both. Each one means notices, hearings, and discretionary votes. Each one is a chance for opponents to organize and stall the project or stop it outright.
“Because we don’t have countywide zoning, we can already tell a developer clearly what we do and don’t regulate today, and we’re spelling the rest out as we finish our ordinances,” Nichols said. “On appropriately situated private land, you’re not fighting through a rezoning or a conditional-use permit just because you’re a large, power-intensive facility. Our role is building, roads, and specific ordinances, not a discretionary land-use veto.”
That doesn’t mean Otero is throwing the doors open to anything, anywhere. The county is drafting a Renewable Energy Facility Ordinance aimed squarely at utility-scale solar, wind, and standalone storage. It would set standards for setbacks, noise, visual impact, decommissioning, and financial assurance—basically the things neighbors worry about when they see panels and turbines stretching toward the horizon.
“The draft ordinance is deliberately not a zoning code,” Nichols said. “It’s an objective set of standards for utility-scale renewables, and it expressly recognizes that a microgrid serving a data center is a different animal than a merchant solar farm.”
There’s a bigger idea buried in that distinction. A lot of the tension in today’s data center fights comes from the fact that the load shows up before the infrastructure. A hyperscale campus can take down hundreds of megawatts. If all of that has to come from a grid that was never designed for it, somebody is going to pay—either in higher rates, new transmission corridors, or more frequent outages. It’s not surprising that ratepayers and environmental groups are wary.
New Mexico, and Otero with it, is betting on a different model: put as much of the supply as possible behind the meter.
In 2025, the state wrote “qualified microgrids” into law, defining them as systems with at least 20 megawatts of generation and a controller capable of operating independently of the larger grid. The statute then did something subtle, but important. It said that if a microgrid sells power only to the operator’s own employees or tenants, and none of it is resold to or used by anyone else, the operator is not treated as a public utility. The exemption is drawn narrowly, and it runs alongside other conditions: the law stops treating that power as ordinary retail sales only until 2035, and by 2045 a qualified microgrid’s generation has to come from net-zero-carbon resources, with progress reports to the state.
For a developer, that opens the door to planning around dedicated onsite power. Gas turbines, at least in the near term. Solar fields tied to battery banks. Most likely some combination of the two, since the 2045 net-zero-carbon standard means gas alone is not a permanent answer. The local utility doesn’t go away, but it becomes one piece of the picture instead of the main act.
That legal footing is also, honestly, still contested. In the 2026 legislative session a bill to put large microgrids under state Public Regulation Commission oversight, and to hold them to the same clean-energy schedule the state applies to utilities, passed the Senate before running out of time in the House. Its sponsor has signaled it will be back. A developer weighing Otero County should assume the microgrid rules could tighten: the 20-megawatt threshold, a firmer renewable timeline, and limits on selling that power back to the grid are all live questions for 2027. The county cannot control what the legislature does, but a project designed from the start to meet a stricter standard, rather than to exploit the current one, is the project most likely to survive whatever the state decides next.
“The model we expect here is behind-the-meter self-generation sized to the facility,” Nichols said. “State law lets a qualified microgrid generate power for a single large user without the operator being regulated as a public utility, so long as it isn’t reselling that power to others. For a data center powering itself, that’s a workable legal path to dedicated onsite power instead of waiting on grid build-out. If it interconnects with the utility’s system, that runs through a service agreement, and either way it has to meet the state’s carbon timeline.”
Otero has geography on its side here. The county sits in the corridor of the El Paso Natural Gas system, a major interstate line pulling from the Permian and San Juan basins. Capacity on that system is heavily subscribed, so nobody is claiming you can just tap in wherever you like. Any big project would still have to sit down with the pipeline operator, study where a spur or lateral could go, and lock in supply.
But if you’re looking for a place where large-scale gas-fired generation can be credibly sourced for decades, it does not hurt to be a short drive from some of the most productive gas fields in North America. And in the background, two big transmission projects. One already in service and another due later this decade, are gradually thickening the high-voltage web across southern and central New Mexico. They’re not being built for data centers, but they change the backdrop for anyone planning a 30-year asset.
Then there’s water, the part of the conversation that tends to get emotional fast.
In a lot of communities, water has become the line in the sand. People can accept the idea of another big power customer, even if they grumble about the bill. But ask them to share a strained aquifer with a campus that evaporates millions of gallons a day, and the mood changes.
Otero’s pitch on water leans heavily on the specifics of the Tularosa Basin. Underneath the county lies a vast amount of groundwater. The crucial detail is that most of it is brackish, too salty to drink and not something you’d pump straight into a pivot.
“Our value proposition on water is straightforward,” Nichols said. “Tularosa Basin groundwater is overwhelmingly brackish. You’re not competing with municipal or agricultural freshwater; you’re treating a non-potable resource that nobody can drink until it goes through reverse osmosis.”
That isn’t just a talking point. Since 2007 the federal government has run the Brackish Groundwater National Desalination Research Facility in Alamogordo, the only major U.S. facility dedicated solely to brackish and impaired groundwater, where agencies, universities, and companies pilot-test treatment technologies. It is a research and demonstration facility, not a municipal water producer. The city has also built a municipal brackish reverse-osmosis plant and holds water rights permitted through the state engineer, though the plant currently sits offline pending completion of a transmission pipeline and was designed as a peaking facility rather than a primary supply. And in 2025 the state legislature put real weight behind this kind of project. Its Strategic Water Supply Act created a funded state program, run jointly by the Environment Department and the Office of the State Engineer, that awards contracts and grants for treated-brackish-water projects, for the express purpose of protecting the state’s fresh water. The law reaches Otero County in two ways. A public entity such as the city or county can apply directly for that funding, with a private partner supplying the capital and power behind it. And for the contract track, state law requires something the usual data center fight never produces: a published, measurable community-benefits plan and a community-engagement process. In other words, delivering a benefit back to residents is not just good politics here; it is a condition the statute imposes. New Mexico has an established process for permitting rights to brackish groundwater, and the city has already used it for its own project. Its 40-Year Water Development Plan goes a step further, expressly inviting outside partners to help supply water, so long as it meets the city’s quality standard and can be blended into the municipal system. The pieces of a brackish-water economy are here: the federal research base, a municipal plant awaiting activation, and state policy support, even if they haven’t yet been assembled into a working whole.
For a data center, that opens up a different sort of design brief. Instead of fighting for a chunk of the same freshwater pie as households and farmers, a project can look at brackish wells, design treatment systems around the chemistry, and build brine management into the plan. It’s not cheap and it’s not simple. But from a community’s perspective, there is a big psychological difference between “you’re taking our drinking water” and “you’re treating water we can’t use without a lot of effort anyway.”
There is a bigger idea inside that distinction, and it is the one that may matter most to how this project is received. Almost everywhere data centers are being fought, the argument against them is the same, and it is about water: an outside company arrives, draws down a strained supply, and leaves the community worse off. Residents in southern New Mexico are seeing that message too. It travels well in a desert.
What Otero County is weighing flips that argument on its head. Because the water in play is brackish, and because the city has a finished treatment plant that sits idle for want of cheap power and a steady customer, a data center here would not be draining the supply. It would be the thing that finally switches the plant on. Pair the facility’s behind-the-meter power with the idle plant, take the small closed-loop share a modern data center actually needs, and the overwhelming majority of the treated water flows to the community, water that does not exist today. The project can also fund the remaining transmission pipeline the plant needs to run, and a large, steady industrial customer spreads the plant’s fixed costs in a way that can hold down the per-gallon cost of municipal water. More supply, new infrastructure, lower long-run costs: the same three things residents are usually told a data center will take from them.
That reframing lands harder in a place like Otero County than it would in a wealthy suburb. This is not a community swimming in options. Its poverty rate runs around one in five, well above the national figure; median household income sits below state and national levels; and a large share of residents are older and on fixed incomes, acutely sensitive to any rise in the cost of essentials like water. The regional economy leans heavily on federal payrolls, and genuinely new private investment of any scale is rare. For a community carrying that much on paper, a project that secures the water supply, builds infrastructure, holds down costs, and brings capital all at once is not an ordinary economic-development deal. It is the kind of outside-the-box, win-win opening that does not come along often, and that a place with few other paths forward can hardly afford to wave away.
None of this comes free. That’s where the tax conversation starts, and where Otero sounds more like a bond desk than a booster club.
New Mexico counties have had the ability to use Industrial Revenue Bonds for decades. In plain terms, an IRB lets the county issue bonds to finance a qualifying project, hold title to the improvements, and negotiate payments in lieu of property taxes. The developer gets property tax relief on the bonded improvements for up to 30 years; the county and other taxing entities get a predictable cash flow spelled out in a PILOT agreement instead of chasing fluctuating valuations.
“Otero can materially reduce the effective tax burden, but we do it inside a bond structure the statutes already define,” Nichols said. “An IRB with a payment-in-lieu-of-taxes agreement gives the operator a predictable cost basis and gives local schools and services a predictable revenue stream.”
The bond tool can be paired with the state’s Local Economic Development Act, essentially a way for state and local governments to co-invest in qualifying projects through infrastructure or grants tied to performance. In specially designated redevelopment areas, tax-increment financing and additional property-tax relief come into play. And if a site sits in a federal Opportunity Zone, equity investors can pick up capital-gains advantages if they hold their stake long enough.
What Nichols emphasizes is that these are all written down in statute and turned into contracts, not simply negotiated on the back of a napkin.
“The strongest assurance we can provide isn’t a ribbon-cutting,” he said. “It’s a record of ordinances and agreements. An IRB ordinance, a LEDA project participation agreement, a PILOT contract—once the commission approves those, they operate as enforceable contracts for the life of the project.”
The other pieces of the puzzle look more familiar. Otero is close enough to El Paso to tie into major long-haul fiber routes that track the I-10 corridor and the border. The exact fiber situation is highly local—one parcel might have easy access, another might require miles of new build—but the region is on the map. County staff say they are prepared to help developers get real answers from carriers rather than sending them off to cold-call telecom sales desks.
On workforce, the county has an unusual advantage: it shares boundaries with Holloman Air Force Base, White Sands Missile Range, and part of the Fort Bliss training complex. That means a steady flow of people who have lived with mission-critical operations, cleared environments, and round-the-clock schedules. Not everyone leaving the military wants to babysit servers, but the skill base is there in a way that most rural counties can’t match.
None of this guarantees that Otero will land a marquee AI campus or a string of cloud availability zones. It can’t change the fact that it’s far from the biggest cities and doesn’t control the global network map. What it is trying to do is reduce the number of unknowns in a conversation that, in a lot of places, still starts with a shrug.
Looked at from a distance, Otero’s playbook hints at what “ready” might mean in the next phase of U.S. data center expansion. For communities, it’s not just about dangling tax breaks; it’s about deciding in advance whether they want these projects at all, putting some objective structure around permitting and land use, and figuring out power and water strategies that don’t feel like a zero-sum game.
And that is precisely why this kind of story matters to cities and counties trying to attract digital infrastructure: serious operators are paying close attention to which communities have already done the work on power, water, permitting, and incentives, and which ones are still making it up as they go.
For developers, the homework gets harder, too. The days of checking the three boxes of cheap land, big substation, friendly local government and calling it a day, are fading. The new questions sound more like: Who controls the water, and how? What statute is the tax deal resting on? What happens if the transmission project slips three years? Is there someone on the county side who can actually coordinate air permits, water rights, and bond approvals?
The simple sites are gone. What’s left are places willing to wrestle with power, water, politics, and law as a single problem (or solution), and to put their answers in writing. Rural counties like Otero are betting that if they can do that, they’ll at least get in the room when the next wave of AI infrastructure goes looking for a home.
They may also discover something communities and cloud giants rarely share these days: a way to say yes without pretending there are no trade-offs.