The Knox County Data Center Rules, and the Memphis Disaster They're Designed to Prevent

Knox County is in the early stages of writing new zoning rules for data center development. A resolution that begins that process comes up for a vote at the May commission meeting, sponsored by Commissioner Andy Fox, and directs the Knoxville-Knox County Planning Commission to draft amendments to the county's zoning ordinance defining and regulating data centers. Hyperscale data centers can cause serious harm to the communities they land in, and Knox County is right to want to head that off before it happens here.

Before going further, a disclosure: some of our clients are customers of TenHats, an existing data center in downtown Knoxville that we will return to later in this piece. That working relationship gives us close familiarity with how a well-run small data center operates, and it is worth flagging at the start. To understand both why the rules matter and what is actually on the table, the place to start is Memphis.

Memphis

In the summer of 2024, Elon Musk's AI company xAI built a 150-megawatt data center called Colossus in South Memphis, Tennessee, on the site of an old Electrolux factory. The buildout took 122 days. Because the local grid couldn't supply that much power, xAI installed gas turbines on the site to handle the load. They were permitted for 15 turbines. Aerial photos surfaced by the Southern Environmental Law Center showed they actually installed 35, classifying the extras as "temporary non-road engines" to dodge Clean Air Act review.

Those turbines became the largest single source of smog-forming nitrogen oxides in the Memphis area, in a region that was already failing federal air quality standards. The site sits next to Boxtown, a majority-Black community in South Memphis, where residents reported respiratory problems and a rotten-egg smell in the air after the turbines came online. The NAACP filed a Clean Air Act lawsuit against xAI in April 2026 over the company's second data center, Colossus 2, which is powered by 27 unpermitted gas turbines at a power plant xAI built across state lines in Southaven, Mississippi. The EPA confirmed in January of this year that turbines of that size require air permits, closing the loophole xAI had relied on.

The turbines were not the only promise xAI walked back. In October 2025, the company held a public groundbreaking for an $80 million water recycling plant on Riverport Road that was supposed to cool the data center with treated wastewater instead of pulling from the Memphis Sand Aquifer, the region's drinking water supply. Six months later, in April 2026, the project's engineer confirmed to local press that construction was indefinitely paused while xAI focused on building Colossus 2. Meanwhile the company continues to draw an estimated 5.7 million gallons of drinking water per day from the aquifer, and is building a natural gas power plant on the site to handle long-term power demand.

What happened in Memphis is the pattern Knox County is trying to keep out. A massive data center operator shows up promising compliance with environmental and infrastructure standards, picks the cheapest path once construction is underway, exploits whatever regulatory gap is available, walks back the commitments made during permitting, and leaves the surrounding community to deal with the consequences. The resolution coming up at the May commission meeting is aimed at preventing that kind of project from setting up here. It has signatures from Republican and Democratic commissioners alike, which is rare on this kind of issue and worth taking seriously.

Why the Threshold Matters

A massive AI campus and a small healthcare data center supporting a hospital are not the same kind of building, and any rules the Planning Commission writes should reflect that. The proposal already does this by setting a threshold: the strict rules only apply to data centers above a certain power level. That is the right approach in principle. The question is where the threshold should actually sit.

Commissioner Fox has described the threshold as 10 megawatts. That is on the low end of where other places tend to draw the line. Virginia, which has dealt with more data center growth than any other state, only applies its toughest rules at 100 megawatts. The industry itself uses 100 megawatts as the line for what counts as "hyperscale." Data centers in the 5-to-20-megawatt range are usually mid-sized operations serving local hospitals, banks, and small businesses, not the massive AI campuses people are worried about. A threshold set at 20 megawatts would still catch everything that looks like the Memphis xAI build, while giving legitimate mid-sized operators room to grow without tripping rules meant for a completely different type of facility.

For data centers above whatever threshold is chosen, strict rules make sense. Companies operating at that scale have the money to build their own power systems, install real pollution controls, and properly study their water use. The Memphis case shows they usually will not do any of that voluntarily. The proposed rules acknowledge that, which is the right starting point.

The Rules, One by One

The energy rule says large data centers cannot plug into the public electric grid at all. They have to generate their own power using solar, wind, or nuclear. For a hyperscale operation, that makes sense. Companies that size can afford to build their own generation, and Memphis showed what happens when they are allowed to use the public grid as cheap backup instead.

The water rules are aimed at the most damaging part of the Memphis story. Hyperscale data centers can consume millions of gallons of drinking water a day to cool their servers, 5.7 million gallons a day in xAI's case. Commissioner Russell raised the right concern about water being returned to local sources warmer than it was taken, or evaporated entirely. The harder problem the rule needs to solve, though, is that water commitments made at the permitting stage often get walked back once a facility is operating. xAI's $80 million water recycling plant in Memphis was supposed to take its consumption to zero. It is now indefinitely paused. The Knox County rules should require ongoing reporting of actual water use, hard caps on draws from local sources, and real consequences when commitments made during permitting get abandoned after construction.

The architecture rule says new data centers have to be built in one of three styles: art deco, neoclassical, or Greek revival. The intent is reasonable. Nobody wants the county filling up with the kind of giant prefab warehouses you see going up around Amazon distribution centers. The problem is that the rule only applies to data centers. If we care how large industrial buildings look in this county, the standard should apply to all of them, Amazon warehouses included. Either extend the rule to all large industrial construction, or drop it from the data center ordinance entirely.

Why We Already Have Data Centers

We already have data centers in Knox County, and most people do not know it. There is a data center in downtown Knoxville, right next to the new Covenant Health Park, called TenHats. It is primarily owned by Covenant Health, supports their remote patient monitoring program across the region, and serves a number of small and mid-sized local businesses, including some of our clients. Some AI workload runs there, but most of the building supports the kind of digital infrastructure that local healthcare, banking, and small business depend on every day. The building uses no city water for cooling. It sits in an unassuming structure that tens of thousands of Knoxvillians have walked past without realizing what it is. And it falls well below either a 10 or 20-megawatt threshold. TenHats shows what data center development can look like when it is sized to what a community actually needs, and the proposed rules should make room for more facilities like it, not fewer.

What Comes Next

This is not an argument against AI, innovation, or new business coming to Knox County. It is an argument against companies that show up at massive scale, promise to be good neighbors, and then deliver something completely different once they are built. The resolution coming up at the May meeting is aimed at exactly that problem.

What that resolution does is start the process. The Planning Commission still has to draft the actual zoning amendments, and those amendments still have to come back to the Commission for a vote later this year. That gives Knox County time to get this right. The resolution itself deserves to pass. The 20-megawatt threshold, sharper water reporting and enforcement, and a fix to the architecture clause are all worth raising publicly before the Planning Commission begins drafting. Rules that get written without informed input from people who understand the industry are exactly the kind of rules that produce Memphis-style outcomes.