Key Takeaways
California Governor Gavin Newsom has reversed his earlier opposition to state legislation regulating data centers by signing seven bills into law to rein them in.
The measures purportedly prevent the cost of new power generation and grid upgrades needed for data centers from being shifted onto other ratepayers but are likely to shift data center development to other states that see the benefits in their development.
Despite the bills’ stated goals of gaining information about controlling electricity and water use, land use and workforce requirements, and even energy procurement, activist groups in California promise more legislation in the future.
California’s very high electricity rates and legislation regulating data centers may slow their deployment, even though they provide tax revenues, create jobs, and support many services Americans use daily.
On September 21, Governor Gavin Newsom signed seven bills regulating the data center industry in California, imposing new requirements on electricity costs, water use, and local oversight. The legislation requires data centers to provide information on electricity use, water consumption, land use, and workforce needs, giving local communities more information to assess proposed projects. The legislation also requires data centers to comply with the state’s energy procurement requirements and to bring new clean-energy supplies onto the grid. Proponents argue the measures will prevent the cost of new power generation and grid upgrades needed for data centers from being shifted onto other ratepayers. Newsom reversed his views on regulating data centers. Last year, Newsom vetoed legislation requiring data centers to report water use and said he supported them.
Among the legislation Newsom signed were Senate Bill 886 and Assembly Bill 2383, which establish special rules for data centers’ electrical use. The law orders the California Public Utilities Commission to create special requirements and rates for data centers’ electricity use, including costs for new power and infrastructure upgrades. According to Mark Toney, executive director of the Utility Reform Network, a ratepayer advocacy group, “Collectively these measures protect ratepayers from subsidizing the significant energy consumption of data centers, ensuring that the data centers pay upfront for the extra infrastructure that must be built to operate them, and pay their fair share for wildfire mitigation and other ratepayer-funded programs.”
Another bill, AB 1577, requires data centers to report their energy usage and efficiency information to the California Energy Commission for annual publication in public reports. Two other bills require oversight of data center water consumption, with one requiring data center operators, when applying for a business license or permit, to disclose an estimate of their water use and the expected source of water. The other bars cities and counties from approving a new or expanded data center unless the developer submits a water assessment and a water scarcity plan, and requires developers to cover the cost of any necessary water system upgrade.
Despite the bills’ passage, “clean energy” and environmental groups promised more legislation in the future. Arnab Pal, the executive director of Deploy Action, a nonprofit that promotes clean energy, told CalMatters, “I don’t think these bills are the end of this fight; I think we’re gonna have to do a lot of implementation on the back end and, as other states roll out their policies next year, I think California is going to look back and be like, ‘maybe we should have done more,’” Pal said. “I’m interested to see what we do next year on this.”
The Data Center Coalition, which opposed the bills, indicated that the legislation would make California a more challenging place to develop the facilities. The industry trade group said its members were committed to responsible development but warned the measures could push projects to other states: “Legislation such as these create significant uncertainty and introduce potentially duplicative requirements that make doing business in California an unattractive proposition for data centers and other industries,” Khara Boender, a director of government affairs for the group, said in a statement. “These are likely to further limit data center development in California — an already declining market—which pushes job creation, clean energy deployment, and tax revenue to neighboring states.”
Data centers in California are typically smaller than the AI facilities in other parts of the country. Most are under 100 megawatts because of California’s high electricity costs and state regulations on gas-powered generators. Data center electricity use is currently at 2% of the state’s demand but is expected to double in the next 10 years. A Public Policy Institute of California poll in July showed that 73% of California residents oppose building data centers in their communities.
In June, Monterey Park became the first city in the country to permanently ban data centers by a popular vote. At least four other San Gabriel Valley cities have enacted moratoriums, and L.A. County instituted a moratorium for unincorporated areas. Imperial County, Desert Hot Springs and Palm Springs also passed moratoriums, and Coachella permanently banned the facilities. In the Central Valley, Tulare County adopted a moratorium as residents voiced opposition to proposals to develop tiny data centers on local fairgrounds in the region. Fresno City Council is moving forward with a ban, and San Joaquin County is weighing one. In the Bay Area, San Francisco supervisors introduced a proposal to block data centers for 45 days while the city creates new codes. Oakland is considering a moratorium, and Richmond recently voted to approve one.
The vast majority of California’s data centers are in Santa Clara and San José, where leaders continue to court development despite resident backlash. Santa Clara is California’s data center capital–home to 60 data centers–more than any other city on the West Coast. Inexpensive electricity sold by the city’s own power company has attracted major tech firms and data center developers, saving millions of dollars over PG&E rates. The city and its planners have also made it easier for developers by providing guidance and approvals, largely handled by the city’s planning commission.
San José, with 20 operating data centers, has been actively courting data center development to boost property and utility tax revenue. The projects require a special use permit, which must be approved at a public hearing. Last summer, San José Mayor Matt Mahan announced a deal with PG&E that would guarantee power availability and quick connections for 10 major projects in the coming years. The city provided “concierge-style support” for data center developers, leading to a near doubling of interest in data center development earlier this year. For example, Google is proposing to demolish an existing warehouse and build research and development facilities expected to draw about 250 megawatts of power. Microsoft is building a 99-megawatt data center with 224 natural gas generators to provide continuous power during outages or when the grid is overloaded.
Opposition to data centers is fueled by misinformation, much of it spread by China, which is racing the United States to lead the industry America needs to win for national security reasons. Beyond providing tax revenues towns and cities need, data centers support services Americans use daily, including Instagram and Waze, streaming movies, online banking, hailing an Uber, and conversing with A.I. chatbots, among many other future uses that could open frontiers in defense and medicine. Job opportunities abound around data centers not only for development but for upgrades, expansions, reconfigurations, and maintenance as technology evolves, creating steady, local, long-term employment.
California is not the only state to restrict data center development. New York has a one-year moratorium while it develops standards for their development. In Texas, Governor Abbot has required an audit of all current plans that seek ownership, financial, water, and community-impact information before granting grid access. In Pennsylvania, Governor Shapiro rolled out strict permit rules that would ensure data centers pay for their own energy; minimize noise, air pollution, and water use; hire locally; and sign local community benefit agreements.
Conclusion
California has seven new pieces of legislation regulating data centers, signed by Governor Newsom, who has reversed his stance on data center development. The measures purportedly prevent the cost of new power generation and grid upgrades needed for data centers from being shifted onto other ratepayers but are likely to shift data center development to other states which see the benefits in their development. Data centers provide tax revenue and numerous job opportunities, and they also provide Americans with many services they use daily.
