California Signs Sweeping Data Center Energy Laws

On September 21, 2026, Governor Newsom signed a package of seven bills imposing new requirements on data center electricity costs, energy reporting, water use, and local oversight, described by the Governor’s office as “the most comprehensive data center laws in the nation.” The legislation is designed to prevent the cost of new power generation and grid upgrades needed for data centers from being shifted onto other ratepayers, while giving local communities more information to assess proposed projects.

Why This Matters

California data centers currently account for approximately 1,000 MW of demand, projected to increase to 4,500 MW (or 9% of peak demand) by 2040. The rapid expansion of AI-linked data center development has prompted growing concern over electricity prices, water resources, and local infrastructure. This legislative package represents a significant shift in California’s regulatory posture: in 2025, Governor Newsom vetoed similar legislation regulating data center water and electricity usage, but political pressure and rising consumer costs prompted a more comprehensive approach in 2026. Clients who own, finance, or develop data center facilities in California should evaluate the impact of these new requirements on current and planned projects.

Key Legislation

New Electricity Tariffs and Ratepayer Protections (SB 886 – McNerney and Padilla)

The California Technology Innovation and Ratepayer Protection Act requires the California Public Utilities Commission (CPUC) to adopt new tariffs and update existing electric rules by January 1, 2028, to prevent data center electricity costs from being shifted to other ratepayers. Key provisions include:

• Data centers connecting at the transmission level must bear cost responsibility for all transmission facility upgrades and usage, including, to the extent permitted under federal law, shared network upgrades.
• Data centers must disclose in their interconnection applications each instance in which they have submitted an application in other service territories or jurisdictions.
• A 10-year early termination fee applies to data centers that depart the electrical system or fail to reach projected electricity demand. The fee must not be less than the revenue gap between originally projected demand and actual consumption over the minimum 10-year term.
• A voluntary demand response program is authorized for participating data centers, which may reduce costs by siting demand in areas with excess grid capacity.

Generation and Clean Energy Procurement (AB 2383 – Zbur)

A companion bill to SB 886, AB 2383 requires the CPUC to establish generation tariffs for data centers, ensuring compliance with state clean energy procurement requirements and statutory clean energy targets. Data centers must pay for incremental generation cost increases for a minimum period of 10 years. Electric service providers and community choice aggregators must also adopt conforming generation tariffs by January 1, 2027.

Energy Consumption Reporting (AB 1577 – Bauer-Kahan)

This requires data center owners and operators to submit specified information to the State Energy Resources Conservation and Development Commission (Energy Commission), including the data center’s location and size, power usage effectiveness, and the quantity of fuel consumed by onsite generators or other fuel-based energy systems. The Energy Commission must include an assessment of electrical load trends for data centers beginning with the 2029 edition of its integrated energy policy report. Data center owners applying for discretionary permits, entitlements, or land use authorizations must also submit to the applicable local agency information regarding expected annual energy consumption and expected sound levels.

Rate Structure Assessment (SB 1168 – McNerney)

This requires the Energy Commission to assess opportunities for rate structures to ensure that data center costs are not shifted to other ratepayers.

Practical Takeaways

• Model the full cost of California transmission interconnection into project economics. Under SB 886, developers will bear cost responsibility for all transmission facility upgrades and usage. Data centers entering into new transmission interconnection agreements on or after January 1, 2027, will be subject to the new tariff once adopted. Developers with pending or planned interconnection applications should closely track the CPUC’s ongoing rulemaking proceeding (A.24-11-007), as the CPUC must adopt new tariffs by January 1, 2028.
• Prepare for new reporting obligations. AB 1577 creates new reporting requirements to the Energy Commission, and data center operators seeking local land use approvals will need to provide additional disclosures regarding energy consumption and sound levels. Owners and operators should begin tracking the data points required by the legislation to ensure timely compliance.
• Evaluate the voluntary demand response program. While participation is optional, siting in areas with excess grid capacity and investing in on-site battery storage or generation could reduce overall costs and improve a facility’s positioning under the new regulatory framework.
• Monitor industry response and site-selection implications. The Data Center Coalition, the membership association for the data center industry, has warned that the legislation “create[s] significant uncertainty” and could push projects to other states. Clients should evaluate the competitive implications for California-sited projects relative to other jurisdictions.

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