California AI data center rules blocked by Big Tech

from Alejandro LazoCalMatters

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The tools that power AI consume energy. But attempts to keep ordinary Californians from paying the bill in 2025 ended with a law requiring regulators to write a report on the problem by 2027.

If that sounds pretty watered down, it is. Efforts to regulate energy use by data centers — the beating heart of AI — have run afoul of Big Tech, business groups and the governor.

That’s not surprising given that California is increasingly dependent on big tech for state revenue: Several companies paying over $5 billion only on income tax withheld.

The law mandating the report is the only survivor of last year’s push mastering the data center industry. Its deadline means the findings likely won’t be ready in time for lawmakers to use in 2026. The measure began as a plan to give data centers their own electricity rate, protecting households and small businesses from higher bills.

That amounts to a “toothless” measure ordering the utility regulator to investigate a problem it already has the authority to investigate, said Matthew Friedman, an attorney at The Utility Reform Network, a rater advocate.

The huge demand for electricity in data centers has pushed them to the center of the energy debate in California, and that’s why lawmakers and consumer advocates say the new regulations matter.

For example, the sheer amount of energy required by California data centers raises questions about expensive grid upgrades, even as speculative projects and rapidly changing AI workloads make long-term planning uncertain. Developers have requested 18.7 gigawatts of data center service capacity, more than enough to serve every household in the state, according to California Energy Commission.

But the report could help shape future debates as lawmakers reconsider tighter rules and the CPUC considers new policies on what data centers pay for energy — a discussion that gains urgency as scrutiny of their rising electricity costs grows, he said.

“It’s possible that the report will help the Legislature understand the scale of the problem and potential solutions,” Friedman said. “It could also inform the CPUC’s own review of the reasonableness of rates for data center customers, which they are likely to investigate.”

State Senator Steve Padillaa Chula Vista Democrat, says the final version of his bill is “not the one we would prefer,” agreeing that it may seem “obvious” that the CPUC could study the impact on data center costs. The measure could help shape future debates and at least “says unequivocally that the CPUC has the authority to study those impacts” as demand from data centers accelerates, Padilla added.

“(Data centers) consume enormous amounts of energy, enormous amounts of resources, and at least in the near term, we’re not going to see that change,” he said.

Earlier drafts of Padilla’s measure went further, requiring data centers to install large batteries to support the grid during peak demand and demanding that utilities supply them with 100 percent carbon-free electricity by 2030 — years ahead of the state’s own mandate. These provisions were eventually abolished.

How California’s First Push to Regulate Data Centers Slipped Away

California’s attempt to bring more oversight to data centers unraveled earlier this year under industry pressure, culminating in Gov. Gavin Newsom’s veto of a bill requiring operators to report water usage. Concerns about the bills reflect fears that data center developers could move projects to other states and take valuable jobs with them.

September one Stanford Report on powering California’s data centers said the state risks losing property tax revenue, construction union jobs and “valuable AI talent” if data center construction moves out of state.

The idea that increased regulation could lead to business or dollars in some form leaving California is an argument that has been made across industries for decades. It often does not stand up to closer or longer scrutiny.

In the face of this opposition, two key proposals got stuck in the legislature’s procedural quagmire. At the beginning of the session, Padilla set aside clean energy incentives data center proposal on hold until 2026. Later in the year, an Assembly bill requiring data centers to reveal electricity consumption was placed on the Senate docket — where appropriations committees often quietly stall measures.

Newsom, who has is often spoken of AI dominance in California, echoed concerns about the industry’s competitiveness in its veto message of the requirement to report water consumption. The governor said he was reluctant to impose requirements on data centers “without understanding the full impact on businesses and users of their technology.”

Despite last year’s defeats, some lawmakers say they will try to tackle the issue again.

Padilla plans to try again with a bill that would add new rules on who pays for the long-term costs of California’s data center network, while Assemblywoman Rebecca Bauer-Kahan, D-San Ramon, will revise her electricity disclosure bill.

Big Tech Warns of Job Losses, But One Advocate Sees Freedom

After blocking most of the measures last year — and softening the only energy spending bill — Big Tech groups say they will revive arguments that new efforts to regulate data centers could cost California jobs.

In a CalMatters event in NovemberSilicon Valley Leadership Group executive director Ahmad Thomas argues that California must compete to attract investment as $40 billion Texas data center project backed by Google. Any tougher political deals like this next year will provoke conflict, he added.

“When we get down to the details of what our regulatory regime looks like compared to other states or how we can make California more competitive … that’s where we sometimes struggle to find that happy medium,” he said.

Although it has more regulation than some states, California continues to switch between the 4th and 5th largest economy in the world and has been for some time, suggesting that the Golden State is very competitive.

Dan Diorio, vice president of state policy for the Data Center Coalition, another industry lobbying group, said the new requirements for data centers should apply to all other large electricity users.

“Singling out one industry is not something that we think will set a useful precedent,” Diorio said. “We’ve been very consistent in that across the country.”

Critics say fears of job losses are overblown, noting that California has built its AI sector without the massive hyperscale facilities that typically gravitate to states with ample, cheaper land and streamlined permits.

The location of data centers — driven by energy prices, land and local regulations — has little to do with where AI researchers live, said Shaolei Ren, an AI researcher at UC Riverside.

“Those two things are kind of separate, they’re separate,” he said.

TURN’s Friedman said lawmakers may have a bargaining chip: If developers were interested in cheaper energy, they wouldn’t be proposing facilities in a state with high electricity prices. That means speed and security may be a priority, giving lawmakers the opportunity to potentially offer faster approvals in exchange for developers covering more of the network’s costs.

“There’s so much money in this business that the energy bills — while big — are kind of like rounding errors for these guys,” Friedman said. “If that’s true, then maybe they shouldn’t care about having to pay a bit more to ensure the costs aren’t passed on to other customers.”

This article was originally published on CalMatters and is republished under Creative Commons Attribution-NonCommercial-No Derivatives license.