The tools that power artificial intelligence consume energy. But attempts to prevent Californians from footing the bill in 2025 ended with legislation requiring regulators to write a report on the issue by 2027. Legislative efforts to regulate energy use in data centers, the heart of AI, have run headlong into challenges from Big Tech, business groups and governors. Mandatory reporting laws were the only thing that survived in efforts to rein in the data center industry. The measure began as a plan to give data centers their own electricity rates, protecting households and small businesses from high bills. Lawyers for ratepayer advocates say the report could help Congress understand the problem and potential solutions.
The tools that power artificial intelligence consume energy. But attempts to protect ordinary Californians from footing the bill in 2025 ended with legislation requiring regulators to write a report on the issue by 2027.
If that sounds pretty flimsy, it is. Efforts to regulate energy use in data centers, the heart of AI, have run headlong into challenges for Big Tech, business groups, and governors.
This is not surprising given California’s increasing reliance on big tech for state revenue. A small number of companies pay more than $5 billion in withholding taxes alone.
The reporting law is the only survivor of last year’s efforts to rein in the data center industry. That deadline means the findings likely won’t be available to lawmakers until 2026. The measure began as a plan to give data centers their own electricity rates and protect households and small businesses from high bills.
Matthew Friedman, a staff attorney at the Utility Reform Network, a ratepayer advocacy group, said this amounts to a “tooth-pulling” move that directs utility regulators to investigate issues they already have the authority to investigate.
Data centers’ massive power demands have thrust them into the center of California’s energy debate, which is why lawmakers and consumer advocates say new regulations are important.
For example, the sheer amount of energy demanded by California data centers raises questions about costly grid upgrades, even as speculative projects and rapidly changing AI loads make long-term planning uncertain. Developers are requesting 18.7 gigawatts of service capacity for the data center, more than enough to serve every household in the state, according to the California Energy Commission.
But the report could help shape future discussions as lawmakers reconsider stricter rules and the CPUC considers new policies on data center power rates, he said, a discussion that is gaining urgency as scrutiny of soaring data center power costs increases.
“The report could help Congress understand the magnitude of the problem and potential solutions,” Friedman said. “It may also provide information to the CPUC itself in its review of the reasonableness of charges for data center customers, which the CPUC may investigate.”
State Sen. Steve Padilla, D-Chula Vista, said the final version of the law was “not what we wanted,” and agreed that it may seem “natural” that the CPUC could study the impact on data center costs. The move could help frame future discussions, Padilla added, and at least “clearly say the CPUC has the authority to investigate these impacts” as demand from data centers accelerates.
“[Data centers]consume a tremendous amount of energy and a tremendous amount of resources, and I don’t see that changing, at least not in the near future,” he said.
Padilla’s previous bill went further, requiring data centers to install larger batteries to support the grid during peak demand times and requiring utilities to provide 100% carbon-free electricity by 2030, several years earlier than the state’s own mandate. These provisions were eventually removed.
How California’s first push to regulate data centers failed
California’s plan to tighten oversight of data centers collapsed under industry pressure earlier this year, ending with Gov. Gavin Newsom’s veto of a bill that would have required operators to report their water usage. Concerns about the bill reflected concerns that data center developers would move their projects to other states and lose valuable jobs.
A September report from Stanford University 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 somehow lead to companies and money leaving California is a debate that’s been raised across the industry for decades. They often do not withstand more careful or long-term scrutiny.
In the face of this opposition, two important proposals stalled in procedural confusion in Congress. Earlier in the session, Padilla put a separate clean power incentive proposal for data centers on hold until 2026. Later that year, a Congressional bill that would have required data centers to disclose their power usage was placed on the Senate hold file, but appropriations committees often quietly halt the action.
Newsom, who has frequently talked about California’s AI advantages, echoed concerns about the industry’s competitiveness in his veto message on water usage reporting requirements. The governor said he was reluctant to impose requirements on data centers “without fully understanding the impact on businesses and consumers of their technology.”
Despite last year’s defeat, some lawmakers say they are willing to take up the issue again.
Padilla plans to try again with a bill that would add new rules for who pays for long-term power transmission costs for California data centers, and Rep. Rebecca Bauer-Kahan (D-San Ramon) plans to revisit the power disclosure bill.
Big tech companies warn of job losses, but one advocate sees opportunity
After blocking most policies and watering down the only energy cost bill last year, Big Tech groups say new efforts to regulate data centers will revive the debate that they could cost California jobs.
At a CalMatters event in November, Silicon Valley Leadership Group CEO Ahmad Thomas argued that California needs to compete to attract investments like the $40 billion data center project that Texas secured with Google. He added that tightening such policy agreements next year would lead to conflict.
“When you get to the specifics of what our regulatory regime is compared to other states or how we can make California more competitive, we sometimes have a hard time finding that happy medium,” he said.
Despite having more regulations than some states, California continues to vacillate between the world’s fourth and fifth largest economies, and has been for some time, suggesting the Golden State is highly competitive.
Dan Diorio, vice president of national policy for the Data Center Coalition, another industry lobbying group, said the new requirements for data centers should also apply to all other large electricity users.
“I don’t think singling out any particular industry sets a useful precedent,” Diorio said. “We have been consistently working on this across the country.”
Critics say concerns about job losses are overblown, noting that California built its AI sector without the large hyperscale facilities that typically gravitate to states with abundant, cheap land and streamlined permitting.
Shaolei Ren, an AI researcher at the University of California, Riverside, said data center locations are driven by energy prices, land and local regulations, and have little to do with where AI researchers live.
“These two are separate and separate in a way,” he said.
TURN’s Friedman said lawmakers may have a bargaining chip: If developers care about cheaper power, they won’t propose facilities in states with high electricity rates. That means speed and certainty could be prioritized, giving lawmakers more leeway to propose faster approvals in exchange for developers shouldering more grid costs.
“There’s so much money flowing into this business that to them, energy bills, even if they’re high, are like a rounding error,” Friedman said. “If that’s true, then maybe you don’t have to worry about paying a little extra to make sure the costs aren’t passed on to other customers.”
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ALEJANDRO LAZO/CalMatters Written by CalMatters. This article was originally published by CalMatters and distributed through a partnership with The Associated Press.
