Major data center bills advance in California despite industry pushback

California, with its sky-high electricity prices, isn’t facing the same influx of data centers that many other states are. But the massive facilities are still being built and proposed in California — and legislators are racing to stop them from pushing up utility rates and pollution.

Two major data center bills passed a key committee last week as California’s legislative session nears its close at the end of this month. Senate Bill 886 aims to prevent data centers from raising utility costs for other consumers, while SB 887 would incentivize developers to invest in clean energy and nearby communities.

Data centers have lawmakers nationwide walking a fine line. Voters are increasingly worried about the facilities’ impacts on energy affordability and the environment, but the industry also promises jobs and economic benefits. State Sen. Steve Padilla, the Democrat who penned both California bills, says his proposals would rein in the sector without stifling it completely.

“People are asserting that it’s a binary choice” on data centers — ​“you can either ban them all, which is some communities’ reaction, or you can have zero regulation,” said Padilla, whose bills were inspired by a high-profile conflict between a data center developer and residents in a county he represents.

“I think we can walk and chew gum at the same time,” he said. ​“We can protect consumers and communities, and support infrastructure that supports tech companies and jobs.”

SB 886 takes on the first part of that equation. It would require the California Public Utilities Commission to set rules for data centers of at least 25 megawatts to fully cover the costs they impose on customers of the state’s three major utilities. Data centers would pay for the new power generation and grid upgrades they need, along with a ​“reasonable share” of the fees utilities collect for wildfire mitigation, environmental programs, and other social initiatives.

This is not a new approach, with many states already enacting similar ​“large load tariffs.” Along with these requirements, SB 886 would create a mandatory demand-response program that forces data centers to stop pulling power from the grid during supply-demand emergencies. Similar mandates are under consideration in places like Texas and the 13-state region served by grid operator PJM Interconnection.

SB 887, meanwhile, would offer expedited state environmental review for data centers ​“if they commit to high standards and serving communities,” Padilla said. Data centers seeking this special treatment must get 100% of their hourly electricity consumption from carbon-free resources within five years, 75% of it newly built. And they’ll need to draw from zero-carbon backup power — most likely batteries — when the grid is under stress, rather than using diesel generators, which are installed by almost all data centers. Developers would also have to pay for grid interconnection costs in advance and commit to a community benefits plan.

Although California has yet to see the massive, gigawatt-scale data centers being built in some states, several larger-scale projects are in the works near Silicon Valley. Those include Microsoft’s 48-megawatt data center in San Jose, developer Stack Infrastructure’s 77-megawatt data center in Hayward, and, most recently, Google’s 250-megawatt research and development center in San Jose.

More data centers are coming. Northern California utility Pacific Gas & Electric has 10 gigawatts of demand from data centers in its pipeline over the next 10 years, equivalent to what’s needed to power roughly 7.5 million homes. PG&E says that load growth will create billions of dollars in tax revenue and — more important to its customers — lower electric bills by 10% or more ​“by spreading fixed costs across more energy usage.”

Environmental and consumer groups are skeptical. The Union of Concerned Scientists warned in a May report that the state ​“currently has too few protections to ensure data center costs are not passed along to ratepayers.”

“The data center developers don’t really care about costs,” said Matthew Freedman, senior staff attorney with The Utility Reform Network, a consumer advocacy group that supports SB 886 and SB 887. ​“They’re focused entirely on speed of development, and on proximity to Silicon Valley.” Meanwhile, PG&E and the state’s other investor-owned utilities earn guaranteed profits based on how much money they invest in capital infrastructure, giving them little incentive to control those costs, he said.

Although SB 886 has won the support of utility worker unions, PG&E opposes it. In an email to Canary Media, company spokesperson Paul Moreno said the bill would ​“introduce rigid, duplicative requirements that conflict with existing regulatory processes, risk higher costs for customers, and delay critical infrastructure needed to serve the state’s growing energy demand. We continue to work with lawmakers to improve the bill, so it better supports affordability, reliability and equitable cost allocation for all customers.” PG&E has taken no position on SB 887.

Both bills face pushback from the Data Center Coalition, a trade group representing major data center developers, natural gas generator company ERock, and business organizations. The groups wrote in a March letter that data centers shouldn’t be ​“singled out” for different treatment from other big power-using customers. They also fear that SB 886’s demand-response mandate could force them to curtail computing operations relied on for critical health care and government services.

Meanwhile, the coalition argues that SB 887’s clean power requirements are virtually impossible for data centers to meet. ​“We don’t see it as a streamlining mechanism, because those standards are not attainable,” said Khara Boender, Western government affairs director for the group.

It’s unclear how Gov. Gavin Newsom (D) will respond to bills opposed by politically powerful utilities and tech companies. Last year, Newsom vetoed a bill that would have required data centers to report their water usage. And Padilla said his 2025 proposal to create a new rate class for data centers was watered down to a ​“study” bill requiring the utility commission to examine and report on their energy cost impacts.

But the politics are shifting. A recent poll commissioned by Net-Zero California, a Sacramento-based environmental policy group that supports SB 886 and SB 887, found that 70% of voters in the state oppose data centers in their communities, and that 74% want to see requirements for data centers to cover their costs and use clean energy. Newsom recently told reporters that ​“it’s absolutely essential and appropriate that these hyperscalers pay their fair share,” citing Google and Microsoft specifically.

Padilla said he expects SB 886 and SB 887 will pass in the state Senate and Assembly before the end of the legislative session this month. Newsom has until the end of September to sign bills into law.