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ARTICLE · 13 AUGUST 2026

Islanded, But Not Unregulated Or Unchallenged: New Developments For Behind-the-Meter Data Center Power Generation

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EPA guidance exempts islanded power generation facilities serving data centers from the Clean Air Act's Acid Rain Program, while a threatened lawsuit in San Antonio challenges whether data centers and their dedicated power plants should be treated as separate or aggregated sources for permitting purposes. These developments highlight the evolving regulatory landscape and litigation risks facing behind-the-meter generation projects in the rapidly expanding data center sector.

United StatesEnvironment
Siddharth V. Velamoor
Siddharth V. Velamoor
Joshua A. Geltzer
Joshua A. Geltzer
Ariel Soiffer
Ariel Soiffer
Tommy Beaudreau
Tommy Beaudreau
Barak Kamelgard
Barak Kamelgard
Connor Brashear
Connor Brashear
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In a July 2026 client alert, we examined the rapidly evolving legal landscape surrounding data center development, focusing on the growing wave of nuisance, environmental and land-use litigation targeting data center projects. Since publication, several notable developments have further illustrated the pace at which legal and regulatory risks in this area are evolving.

This update highlights two such developments: (1) recent US Environmental Protection Agency (EPA) guidance concerning the applicability of the Acid Rain Program (ARP) to “islanded” power facilities serving AI and data center operations and (2) a novel segmentation argument in a threatened Clean Air Act (CAA) lawsuit challenging source aggregation and permitting assumptions for behind-the-meter power generation at a data center in San Antonio. Together, these developments underscore the expanding range of regulatory, permitting and litigation issues confronting participants across the data center ecosystem. Key

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