California bill wants data centers to pay costs of increased demand

California Senate

State Sen. Jerry McNerney, D-Pleasanton, introduced legislation to protect Californians from skyrocketing utility rates caused by data centers.

Senate Bill 1168 filed by McNerney on Wednesday will "ensure large energy users pay their fair share," he said.

Silicon Valley plays a significant role in the state's economy, but the industry's data needs have led to the proliferation of data centers pressuring the state's power grid and driving up utility costs for consumers, according to the legislation.

California has 288 data centers, making it the state with the third highest concentration after Virginia (570) and Texas (407), according to Data Center Map, which tracks the proliferation of these facilities.

Other states have taken stronger tactics to deal with costs borne by the proliferation of data centers. Public power utilities across the country are pushing for regulatory and legislative changes to allow them to float more tax-exempt bonds to finance the energy-hungry data center boom.

"Californians pay the second-highest utility prices in the country and rates are expected to soar even higher because of the rapid growth of data centers around the state," McNerney said. "Data center owners and their customers should bear the high costs associated with data centers, not California ratepayers."

The explosive growth of artificial intelligence is expected to accelerate demand on the state's power grid, leading to further transmission and distribution upgrades to deliver that power.

According to Stanford University, over $37 billion was spent on AI infrastructure in 2024 alone. A report from McKinsey estimated an investment total of $5.2 trillion in data centers by 2030 to power artificial intelligence.

Data centers have requested 18.7 GW of power from the state's utilities, enough to power 18 million homes, according to the 2025 Integrated Energy Policy Report from the California Energy Commission.

But regulators are expecting not all of the centers will get built, hence the anticipated growth in energy demand of 4.9 gigawatts by 2040 as artificial intelligence continues to expand, estimated by the California Independent System Operator.

Californians pay close to double what residents of other states pay for power, according to a report from the state legislative analyst's office, because of wildfire mitigation costs, extreme heat and catch up costs from decades of deferred maintenance by the state's investor-owned utilities.