Efforts to Regulate California Data Centers Falter—For Now

As the self-described epicenter of the artificial intelligence (AI) industry, California has become home to one of the largest concentrations of existing data centers in the world, with more projects underway. However, California data center developers and operators are facing increasing logistical and political headwinds due to inadequate electric grid infrastructure and growing concerns about the impact of data center operations on retail electricity prices and water supplies. In 2025, Governor Gavin Newsom demonstrably supported the data center industry by vetoing legislation to regulate water and electricity usage while streamlining regulatory review of renewable energy data center power projects and applications for AI related electrical grid connections. However, political pressure for more regulation will continue to build in a state that suffers from chronic water and electricity shortages.

Legislation To Regulate Data Centers

Concerns about data center water and electricity usage and cost shifting to consumers prompted the introduction of four measures during the just completed session of the California Legislature. AB 93 proposed to require data centers to report water usage data to local suppliers in order to receive building permits or business licenses. The International Energy Agency estimates that a typical 100-MW data center in the United States uses approximately two million liters of water daily. In some communities, data centers are facing lawsuits by environmental groups under California’s Environmental Quality Act over water usage.
“Data centers already rank among the most water-intensive commercial industries. This unprecedented demand requires new approaches to demand management,” stated Assemblymember Diane Papan, author of the bill.

SB 57 and AB 222 aimed to address growing concerns that data center demand for electricity will drive up prices paid by other retail customers. Data Center require copious amounts of electricity at a time when capacity of California’s electrical grid is already strained to the point where brownouts are a threat. Pacific Gas and Electric, California’s largest investor-owned utility, reported last spring that it saw a 40% jump in data center hookup requests that would require 3.5 GW of electricity to operate, which is equivalent to the output of 3 nuclear reactors In the heart of Silicon Valley, some data centers lie idle due to the local utility’s inability to provide adequate quantities of electricity for operations. Silicon Valley Power hiked rates by 5% to cover the costs of infrastructure needed to support data center electricity demand that now consumes 60% of their power. S0B57 would have authorized the California Public Utilities Commission (PUC) to establish a tariff for transmission and distribution service to data centers to prevent cost shifting onto non-data center customers. The bill was watered down to only require that the PUC study the impacts of data center electricity usage on cost shifting. AB 222 proposed to require data center operators to report data on energy consumption and efficiency. The bill passed the Assembly but was held in the Senate and may come up for a vote again in 2026.

Thus far, California has taken a nuanced stance on data center regulation. Governor Gavin Newsom vetoed the legislation to require data centers to report water usage data to suppliers prior to applying for building permits or business licenses and wrote, “I am reluctant to impose rigid reporting requirements about operational details on this sector without understanding the full impact on businesses and the consumers of their technology.” However, the Governor signed legislation requiring the PUC to study the impact of data centers on costs paid by other retail electricity customers. One bill awaits action in the Legislature. Another died in committee.

Here is a summary of legislation on data centers introduced in 2025:

SB 57 (Padilla) authorizes the Public Utilities Commission to assess the extent to which investor-owned utility costs associated with new loads from data centers result in cost shifts to other retail electricity customers. It requires the commission to submit an assessment to the Legislature and to publicly post the assessment on the Commission’s internet website on or before January 1, 2027. The bill originally proposed a tariff on electricity use by data centers to offset any cost shifts to other consumers. Status: Signed by Governor on October 11, 2025.

AB 93 would require a data center, prior to applying to a city or a county for an initial business license or permit, to provide its water supplier, under penalty of perjury, an estimate of the expected water use. The bill also requires a data center applying to a city or county for an initial business license to self-certify, under penalty of perjury, that the entity has provided its water supplier an estimate of the expected water use. The bill would require a licensed or permitted data center facility to provide its water supplier with an annual report on water usage and to certify under penalty of perjury that such reports have been provided when applying to a city or county for a renewal of a business license or permit. Status: Vetoed by Governor.

AB 222 would require that (1) data center operators report annually to the California Energy Commission (CEC) regarding energy consumption and performance, including total energy consumed, energy usage efficiency metrics, percentage of energy supplied by renewable resources, and annual energy consumption from development of specified covered AI models; and (2) before using a covered AI model or system commercially, or before making a covered AI model or system available for use by a third party, a developer must (a) request the developer’s energy usage data from all data centers involved in developing the covered AI model or system, and (b) estimate and publish on the developer’s internet website the total energy (in megawatt hours) used to develop the covered AI model or system. The bill also requires developers to inform data center operators concerning the types of AI models they intend to develop, and would require the CEC to develop energy efficiency performance standards for data centers. Status: Held in the Senate Appropriations Committee.

SB 58 would provide data centers a partial exemption from taxes on gross receipts from the sale, storage, use, installation, assembly, repair, maintenance, or other consumption of data center equipment related to investment in renewable energy. Status: Died in Senate Revenue and Taxation Committee.

Regulatory Initiatives Impacting Data Centers

Governor Newsom has also taken some concrete steps that help data center development:

• Streamlined Process for AI-Related Grid Connections: In July, the California Public Utilities Commission voted to streamline data center project applications to accelerate electric grid connections at the transmission level within the Pacific Gas and Electric Company (PG&E) service territory.
• Streamlined Environmental Review and Permitting of Data Center Electricity Plants: Under a bill signed by Newsom in 2023, the CEC has initiated a program for streamlined environmental review and permitting of renewable energy projects that can support data centers of 50 MW and up and transmission systems that serve data centers. Eligible projects include: solar photovoltaic or wind electrical generating power plants generating 50MW or greater; battery electric storage systems capable of storing 200 megawatt-hours (MWh) or more; and stationary power plants 50 MW or greater using any source of thermal energy, excluding fossil or nuclear fuels. Hydrogen production facilities (not derived from fossil fuel feedstock) and associated onsite storage and processing facilities are also eligible, as are transmission projects associated with these generating and storage facilities.
• Accelerating Development of Fusion Energy: In October, Governor Newsom signed legislation (SB 80) to accelerate the development and growth of fusion energy by creating the Fusion Research and Development Innovation Initiative, distributing $5 million toward advancing research and development into fusion energy. According to the Governor, the initiative and investment will help accelerate the deployment of new research and technology capabilities that support the commercialization of fusion energy, with the goal of delivering the world’s first fusion energy pilot project in the state by the 2040s, in order to help achieve the state’s 100% clean electricity goal by 2045. Fusion energy development is seen as a key solution to data center energy needs. “Fusion energy has the immense potential to provide consistent, clean baseload power on demand that will help us meet our clean energy goals,” said Senator Anna M. Caballero, author of the law.

How Clients Can Get Involved

While the California Legislature is currently in recess, we anticipate that more bills on data centers will be introduced when the Legislature returns in January. In addition, AB 222 will be eligible for a vote in January. Data center developers and operators should monitor bill introductions and make their concerns known to the Legislature during the coming session.

Developers who contemplate building renewable energy projects to power data centers can reach out to the CEC for assistance with permitting, as the agency is interested in assisting data centers with this process.

Mayer Brown represents clients before the California Legislature, the California Public Utilities Commission, and the California Energy Commission on a variety of issues.