California will make large data centers carry more of their grid costs and face an environmental review rule written specifically for the industry. Gov. Gavin Newsom signed Senate Bills 886 and 887 on Monday. Both were authored by Sen. Steve Padilla, a San Diego Democrat, and both became chapters of state law the same day.
SB 886 directs the California Public Utilities Commission to create or update tariffs by Jan. 1, 2028 for covered customers seeking substantial electric service. The commission must evaluate effects on other customers and prevent stranded costs or cost shifts. A data center connecting at the transmission level must disclose duplicate interconnection applications filed with other utilities or jurisdictions.
The law assigns the customer responsibility for transmission upgrades under a method the commission will set. Refunds of upfront contributions are tied to actual revenue from the facility, and a center that leaves within 10 years or fails to ramp up demand can face an early termination fee. Utilities must also publish maps showing places where interconnection would not require major transmission upgrades.
Those provisions address a planning problem created by scale. A utility may build expensive capacity around a forecasted load that arrives late, draws less power than promised or never materializes. Without a customer-specific tariff, remaining ratepayers can be left supporting equipment sized for a private project. The statute sets guardrails but leaves the commission to decide the detailed prices and methods.
SB 887 changes the environmental side. It says categorical exemptions under the California Environmental Quality Act cannot be used for development and operation of a data center, with exceptions for specified publicly owned, public-safety, national-security, publicly funded research and certain higher-education facilities. That rule does not predetermine an environmental outcome; it prevents a covered private project from bypassing review through that exemption route.
The same bill creates a conditional fast track. A data center can qualify as an environmental leadership development project only after the lead agency certifies a long list of requirements. They include paying interconnection costs in advance, avoiding increased in-state fossil-fuel consumption, installing four hours of zero-carbon storage at forecast peak demand and committing to hourly zero-carbon electricity within five years, with three-quarters from new resources.
Water and community obligations are included. A qualifying project must use recycled water and efficient or waterless cooling, and it must enter an enforceable community benefits agreement developed with nearby affected communities. The Governor may certify an eligible project for the existing leadership program, while a state office must develop uniform standards with energy agencies. Streamlining is therefore available, but only after a project clears the listed conditions.
Padilla's office presented the bills as a combined protection package. The enacted text is narrower than a ban and more specific than a policy statement. It does not decide where a data center may be built in San Diego County, approve a particular development or set a single statewide electricity price. Local land-use decisions and project-level review still have to occur.
Implementation now shifts from the Legislature to regulators, utilities and lead agencies. The first visible test will be the tariff proceeding, where cost-allocation rules become actual contracts and charges. The second will come when a covered project claims the leadership pathway: its energy, water, storage and community commitments will have to be enforceable enough for a public agency to certify them.