California Enacts Comprehensive Regulatory Framework for Data Centers

On Sept. 21, 2026, California Gov. Gavin Newsom signed a package of seven bills into law, establishing what the state has characterized as the nation’s most comprehensive regulatory framework governing data center development and operation. The legislation generally focuses on four areas:

• Expanded operational, energy, and water-use reporting;
• Increased scrutiny of electricity and water consumption;
• Enhanced environmental review requirements for data center projects; and
• New utility cost-allocation mechanisms intended to verify that data center operators bear the infrastructure and energy costs associated with large data center loads, rather than residential and other nonparticipating ratepayers.

The legislation reflects growing national attention to the resource, infrastructure, and community impacts of large-scale data center development. As discussed in our prior GT Alerts, similar issues have recently been the subject of legislative, regulatory, and public-policy discussions in major data center markets, including Texas and Virginia.

While the legislation generally takes effect Jan. 1, 2027, some of its most notable provisions will be implemented through future rulemaking and proceedings before the California Public Utilities Commission (CPUC), the California Energy Commission (CEC), and other state and local agencies.

Expanded Operational, Energy, and Water Reporting

Several of the newly enacted laws expand the information that data center owners and developers must provide to California state agencies and local governments.

AB 1577 requires qualifying data centers to report operational and resource consumption information to the CEC, including information regarding facility size, electrical capacity, energy consumption, power usage effectiveness (PUE), water consumption, water usage effectiveness (WUE), onsite generation, fuel consumption, renewable energy sourcing, and participation in demand response and demand flexibility programs. The legislation also directs the CEC to incorporate data center load growth forecasting into statewide energy planning efforts.

The legislation further expands the information available to local governments by requiring disclosure of certain operational characteristics during the land use entitlement and permitting process, allowing local agencies to consider anticipated resource demands as part of infrastructure planning, water resource assessments, and environmental review.

Increased Focus on Water Use

Two of the enacted measures specifically address water consumption and long-term water-resource planning.

AB 2469 requires developers of certain new or expanded data center projects to provide local governments and water suppliers with information concerning projected water demand, water supplies, and water use efficiency measures. Beginning in 2028, certain projects may also be required to provide drought planning information and water scarcity response measures as part of the approval process. The legislation is intended to provide local decision-makers with greater visibility into the potential water impacts of proposed data center developments.

AB 2619 imposes additional reporting obligations concerning anticipated water demand, water sources, and direct and indirect water consumption. The legislation also directs state agencies to develop water-efficiency guidance and requires water suppliers to consider data center demand in future planning and drought-contingency efforts.

Utility Cost Allocation and New Data Center Rate Structures

A central theme of the legislative package is ensuring that facilities are responsible for the costs associated with serving rapidly growing data center loads, rather than shifting associated costs to residential or other utility customers.

AB 2383 directs the CPUC to establish a separate electric service classification and develop rate structures for qualifying large energy-use facilities, including certain data centers. The legislation is intended to allocate transmission, distribution, generation, and energization-related costs, as well as related infrastructure costs, to the large-load customers they serve and to confirm that utility rates prevent cost shifts or stranded costs from being borne by other ratepayers.

Similarly, SB 886, the California Technology Innovation and Ratepayer Protection Act, directs the CPUC to establish or revise tariffs governing the interconnection of large data centers and the provision of retail electric service. The legislation requires the CPUC to evaluate whether tariff structures effectively prevent cost shifting, protect nonparticipating ratepayers, and ensure that data center customers bear the costs associated with serving their demand growth.

SB 1168 provides additional direction to regulators regarding electricity consumption by large data centers and contemplates future rate design and cost-recovery mechanisms addressing grid upgrades, load growth, and associated electric-system impacts.

Environmental Review and Project Approval

SB 887 may have important implications for project development timelines and entitlement strategies. The legislation establishes a statewide definition of “data center” and generally limits the availability of certain CEQA categorical exemptions that might otherwise have been available for qualifying projects. As a result, some projects may face more extensive environmental review than would be required under current law.

At the same time, the legislation creates a pathway for qualifying projects to obtain the benefits associated with California’s Environmental Leadership Development Project program. To qualify, projects generally must satisfy a variety of requirements relating to infrastructure cost responsibility, water efficiency, recycled-water use, clean-energy procurement, and other sustainability objectives.

Practical Implications

Taken together, these statutes may signal a notable shift in California’s approach to data center regulation. Developers and operators may see:

• Increased disclosure obligations during project development and operation;
• Greater scrutiny of anticipated electricity and water consumption;
• More detailed utility interconnection, tariff, and cost-recovery requirements;
• Greater involvement by local governments and water agencies during the entitlement process; and
• Potentially longer permitting timelines due to expanded environmental review requirements.

The ultimate impact of the legislation will depend on forthcoming CPUC proceedings, CEC implementation measures, local government action, and future agency guidance. Nevertheless, California lawmakers have signaled their intention to ensure that future data center development occurs with increased transparency regarding resource consumption and with greater responsibility for the infrastructure costs associated with serving large-scale computing facilities.

Key Takeaways

California’s new data center legislation establishes a comprehensive state-level regulatory framework for the data center industry, expanding reporting, disclosure, permitting, and utility cost-allocation requirements.

Developers, owners, investors, landlords, utilities, and major users should monitor upcoming regulatory proceedings, as the ultimate scope and impact of these laws will depend on future implementation and rulemaking. CPUC implementation decisions may meaningfully impact the economics of data centers located in California that are served, in whole or in part, by CPUC jurisdictional utilities. Therefore, investors and developers may wish to evaluate opportunities to participate in upcoming CPUC proceedings, which may be used to determine cost allocation and rate design, interconnection rules, and potential limitations on electricity demand by data centers.