Who pays for AI's power? California watchdog urges new data center rules

FILE - An aerial view of the Digital Realty SFO12 Data Center, center, is seen in the Rincon Hill neighborhood of San Francisco, Dec. 16, 2025. (Stephen Lam/San Francisco Chronicle via AP, File)

By ALEJANDRO LAZO/CalMatters

If you’re worried about data centers and AI inflating your electricity bill, you’re not alone.

A California watchdog released a report Tuesday urging policymakers to act fast on the state’s fast-growing data-center industry – before soaring electricity demand from artificial intelligence lands on the bills of ordinary households.

“The costs that data centers impose on the electrical grid should be paid by the centers themselves, not by average California families already struggling with high utility bills,” said Pedro Nava, chair of the Little Hoover commission, the independent bipartisan body that produced the report.

The commission outlined more than a dozen recommendations for managing the industry’s impact on the power grid, electricity prices and the state’s climate goals.

The report lands at a critical moment as lawmakers in Sacramento prepare another round of proposals aimed at regulating the rapidly expanding industry.

Similar efforts last year — including proposals to require more transparency about energy use and to shield ratepayers from the cost of grid upgrades — stalled in the Legislature after opposition from the tech industry and business groups.

The coming power surge

At the center of the debate is the sheer scale of electricity demand anticipated from data centers. Pacific Gas & Electric, the state’s largest utility, told regulators last year that data center projects seeking power could add about 10 gigawatts of electricity demand over the next decade — roughly four times the generating capacity of the Diablo Canyon nuclear plant. For context, the Sacramento region uses a little over 3 gigawatts of electricity at its busiest times.

State energy planners assume many planned data center projects will never be built or will operate below full capacity. That’s because companies can propose large data centers without committing to build them while AI computing and cooling needs are changing quickly. But the commission’s report says that California still needs a clearer picture of where that load will land.

The report recommends requiring confidential, facility-level reporting of data center electricity use so regulators can better forecast demand, identify where the grid has room for new projects and understand local reliability and environmental impacts.

Who pays for the grid

Even a fraction of that projected demand could require billions of dollars in new grid infrastructure – and consumer advocates warn the upgrades could shift costs onto households.

The report says large data centers should pay the full cost of the infrastructure and grid services they require. It recommends a special electricity rate category for extremely large power users that would require prepayment for grid infrastructure, contributions toward wildfire safety costs and commitments to pay for a share of the power capacity they request.

“Data center growth has as much potential to increase electricity rates as it does to decrease rates if not done properly,” said Mark Toney, executive director of The Utility Reform Network.

“The recommendations put forward by the Little Hoover Commission are one hundred percent aligned with the Assembly’s priorities,” said Assemblymember Cottie Petrie Norris, a Democrat from Irvine who is the chair of her house’s energy and utilities committee. “We are moving expeditiously to pass a package of bills that will protect Californians from any rate increases and ensure that data centers pay their fair share.”

Transparency and environmental impacts

Data centers are also straining California’s climate goals.

Researchers say electricity use and carbon emissions from the facilities have climbed sharply as AI expands.

The report warns that backup diesel generators at data centers add local air pollution concerns, and that facilities can place significant demands on local water supplies.

It recommends limiting pollution from backup generators, encouraging cleaner backup power and requiring better reporting so regulators can track the environmental footprint of large facilities.

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This story was originally published by CalMatters and distributed through a partnership with The Associated Press.