A ‘toothless’ result

Matthew Freedman, a staff attorney with The Utility Reform Network, a ratepayer advocacy group, called the surviving measure “toothless,” noting that it directs the California Public Utilities Commission to study an issue the agency already has the authority to investigate. The report’s 2027 deadline means its findings will arrive too late to inform 2026 legislation.

“It could be that the report helps the Legislature to understand the magnitude of the problem and potential solutions,” Freedman said. “It could also inform the CPUC’s own review of the reasonableness of rates for data center customers, which they are likely to investigate.”

Padilla said the final version “was not the one we would have preferred,” acknowledging that directing the CPUC to study the issue may seem “obvious.” But the law at least “says unequivocally that the CPUC has the authority to study these impacts” as demand from data centers accelerates, Padilla added.

Earlier drafts of Padilla’s measure had gone further, requiring data centers to install large batteries to support the electrical grid during peak demand and compelling utilities to supply them with 100% carbon-free electricity by 2030 — years ahead of the state’s own clean-energy mandate. Both provisions were stripped before passage.

Scale of demand

The legislative fight reflects data centers’ growing electricity footprint. Developers have requested 18.7 gigawatts of service capacity for data centers in California — more than enough to power every household in the state — according to the California Energy Commission. That volume of demand is prompting questions about costly grid upgrades even as speculative projects and rapidly shifting AI workloads complicate long-term planning.

Newsom’s role and stalled bills

Two other key proposals stalled in the Legislature’s procedural churn. An Assembly bill requiring data centers to disclose their electricity use was placed in the Senate’s suspense file, where appropriations committees often quietly halt measures. Padilla separately put a clean-power incentive proposal on hold until 2026.

Newsom vetoed a separate bill that would have required data center operators to report their water use, saying he was reluctant to impose requirements “without understanding the full impact on businesses and the consumers of their technology.”

Industry arguments

Big Tech groups have said they will revive competitiveness arguments in 2026. At a November industry event, Ahmad Thomas, CEO of the Silicon Valley Leadership Group, argued that California must compete to attract investments like the $40 billion data-center project Texas secured with Google.

“When we get to the details of what our regulatory regime looks like versus other states, or how we can make California more competitive … that’s where sometimes we struggle to find that happy medium,” Thomas said.

Dan Diorio, vice president of state policy for the Data Center Coalition, another industry lobbying group, argued that new requirements should apply to all large electricity users, not to data centers alone.

“To single out one industry is not something that we think would set a helpful precedent,” Diorio said.

A September Stanford report echoed the industry’s warnings, saying California risks losing property-tax revenue, union construction jobs, and “valuable AI talent” if data-center construction moves out of state.

Critics push back

Consumer advocates and researchers disputed the job-loss framing. Shaolei Ren, an AI researcher at UC Riverside, said data-center locations — shaped by energy prices, available land, and local permitting rules — are largely unrelated to where AI researchers choose to work.

“These two things are sort of separate, they’re decoupled,” Ren said.

Critics also noted that California built its AI sector without the massive hyperscale facilities that typically gravitate to states with cheaper land and streamlined permitting, suggesting the industry’s job footprint may be more resilient to state-level policy than lobbying groups assert. California has long toggled between the fourth and fifth largest economy in the world despite having more regulations than many states, according to the CalMatters report on which this article is based.

Freedman suggested that lawmakers may hold more leverage than they appear to. Data centers are proposing facilities in a state with high electricity rates, he said, indicating that speed and regulatory certainty may matter more to developers than per-unit energy costs.

“There’s so much money in this business that the energy bills — even though large — are kind of like rounding errors for these guys,” Freedman said. “If that’s true, then maybe they shouldn’t care about having to pay a little bit more to ensure that costs aren’t being shifted to other customers.”

Outlook for 2026

Despite last year’s setbacks, Padilla plans to introduce legislation addressing who pays for data centers’ long-term grid costs in California. Assemblymember Rebecca Bauer-Kahan, D-San Ramon, plans to revisit her electricity-disclosure bill.

Whether either measure advances will test whether evolving political conditions give consumer advocates more room to negotiate with an industry that prevailed on nearly every front in Sacramento in 2025.