SACRAMENTO, California — For a state that considers itself a leader in both tech and climate, California is falling behind in both building data centers and putting guardrails around their environmental impacts.
Democrats in Sacramento are taking cues from lawmakers in Indiana, Ohio and West Virginia as they explore special electricity rates for data centers aimed at controlling costs for other customers. They’re also weighing new energy reporting standards to better understand the supercomputers’ impacts on California’s electric grid.
Those proposals come as electric utilities are embracing data centers as a potential business savior that promises to increase electrical demand several fold after an era of energy efficiency.
“This trend is absolutely real for us,” Pacific Gas and Electric CEO Patti Poppe said during the utility’s most recent quarterly earnings call in April. “This will be so beneficial for our customers.”
The handful of bills this year are a reaction to PG&E’s November 2024 application to energy regulators for a special tariff for all the new data centers it anticipates connecting to its grid in Northern California — enough to require the power of roughly 6.5 million new homes in the next ten years and four times the output of its Diablo Canyon nuclear plant. Tentatively planned projects would add an additional 1.5 million homes worth of power.
“It’s a big change, and not expected,” said Hunter Stern, assistant business manager with IBEW 1245, which represents PG&E electrical workers. “For years, California’s goal was to reduce emissions through efficiency and load growth was an indication that emissions would be going up, and we’ve changed that.”
But for ratepayer and environmental advocates, it could go either way: Data centers could, if managed properly, bring down the per-customer grid costs that have been dominating the political conversation for months — or they could leave ratepayers with costly stranded assets and even outpace the growth of renewable energy on the grid.
Another concern is pollution from data center power sources. The NAACP announced Tuesday it intends to sue Elon Musk’s xAI over public health risks posed by 35 unpermitted natural gas turbines it says are polluting minority communities in Memphis, Tennessee.
“Will [data centers] use clean generation and battery storage?” Matt Freedman, a staff attorney at The Utility Reform Network, asked at a Senate hearing in April. “The requirements established by the Legislature will largely determine what type of on-site generation is used by these data centers.”
Enter state Sen. Steve Padilla and Assemblymember Rebecca Bauer-Kahan.
Both Democratic lawmakers are carrying bills designed to protect ratepayers from cost spikes as data centers come online. Padilla’s SB 57 would direct the California Public Utilities Commission to set a special tariff for all power customers with at least 50 megawatts of load, while Bauer-Kahan’s AB 222 broadly requires commissioners to minimize ratepayer cost-shifting that might stem from an uptick in data centers joining the grid.
Each contains added sustainability components. Padilla’s measure would allow the CPUC to set zero-carbon procurement targets for data centers. Bauer-Kahan’s plan targets transparency by requiring data center operators to report how much energy is used to power AI models and assigns the California Energy Commission to track supercomputer energy consumption trends.
Tech players like the Data Center Coalition and the business-aligned Silicon Valley Leadership Group have balked at the bills, arguing Padilla’s special tariffs are ill-defined and that Bauer-Kahan’s measure will force companies to reveal trade secrets.
“We’re all kind of left to throw up our hands and kind of speculate as to what the economic impact of all of this may be,” said Peter Leroe-Munoz, Silicon Valley Leadership Group’s general counsel. “It could have a very real chilling effect on the development of needed data centers here in California.”
But Bauer-Kahan thinks the real issue is cost. “They won’t say it out loud because you can’t say we should be shifting these to ratepayers,” she said. “It’s a ridiculous thing to say.”
Yet if lawmakers don’t find a way forward soon, they risk losing the advanced infrastructure fueling Silicon Valley’s artificial intelligence boom to other states while simultaneously failing to align in-state data centers with California’s ambitious climate goals.
“Data centers are the can of spinach for the AI Popeye,” Leroe-Munoz said. “Clearly, we’re putting ourselves at a competitive disadvantage by making it more difficult [to build] while other states are actively working to make themselves more attractive.”
Like this content? Consider signing up for POLITICO’s California Climate newsletter.