A new push to regulate data center costs in California comes as the state braces for an unprecedented demand for power needed to fuel the expected artificial intelligence boom over the next five years.
Data centers are typically non-descript buildings that house racks of servers and other digital infrastructure needed by the emerging AI industry. The largest complex in the U.S. has been dubbed “AI Alley,” where hundreds of buildings have popped up near Dulles airport in Virginia.
Silicon Valley may be the heart of AI-tech, but it has far fewer data centers. The biggest concentration is a cluster of 60 buildings in the 18 square mile city of Santa Clara. At least two of those centers are currently dormant, awaiting a half-billion-dollar grid upgrade to provide them enough power. But even when that upgrade is done in two years, experts say, it will provide just a fraction of the new grid capacity that experts say will be needed to power the AI-tech revolution.
“AI data centers are very, very large capital investments,” said David Beier, a former presidential advisor on science and technology. Beier recently evaluated the state’s AI future while serving on the Little Hoover Commission, a non-partisan state think tank.
“They’re on the order of magnitude of the entire construction of the British and American railroad system, or if you want to take a longer timeframe, the Egyptian pyramids.”
Just one data center draws about as much power as a city the size of Santa Rosa. Upgrades to the grid to allow a single data center to hookup to the grid can cost $100 million, according to utility estimates.
Consumer advocates want to make sure Californians don’t suffer higher rates amid the expected unprecedented level of demand.
“This is about basic fairness,” said Elise Torres, an attorney with the ratepayer advocacy group, TURN. “This is about making sure data centers pay their fair share of their costs.”
But business and tech leaders worry that mandating financial burdens on data centers could put California at a disadvantage in the AI race.
“We have an opportunity right now in California to harness what is transformative in terms of potential around this technology and innovation — and we don’t want to see that lost,” said Ahmad Thomas, CEO of the Silicon Valley Leadership Group, whose members include Apple, Google and Microsoft.
“When we single out particular industries — or frankly just make it cost prohibitive, or prohibitive in general for these technologies to scale here in California — it’s not helpful.”
State lawmakers agreed with that argument last year, killing proposed regulations on new data centers. But state Senator Steve Padilla (D-San Diego), who is trying again with two regulatory bills, believes the mood at the capitol has changed since data centers have driven up rates in other states.
“Even President Trump himself — with whom I have an endless amount of disagreements on policy — said that this massive infrastructure should pay its own way,” Padilla said.
Earlier this year, tech moguls went to the White House and signed a pledge to cover the costs of the data center boom. But Padilla says that pledge was voluntary – his legislation forces moguls pay up front for all the costs. At the same time, he’s got another bill that allow for expedited environmental review of data centers if moguls agree to restrict emissions and conserve water needed to cool the servers.
“So, this isn’t a partisan issue. it’s a common-sense issue,” Padilla said, “to make sure that communities aren’t run over or exploited in a bad way, environmentally or economically.”
The head of Santa Clara’s municipal utility, Silicon Valley Power, recently touted its strategy designed to protect ratepayers and help pay for grid expansion. Data centers in Santa Clara are subject to upfront load development fees, which typically run in the tens of millions of dollars per facility.
“I think Santa Clara is doing a pretty darn good job there,” Nico Procos, electric utility director at Silicon Valley Power, told the legislature in January.
Meanwhile, PG&E’s Patti Poppe told investors this year that new data centers could end up helping to push rates down.
“Every gigawatt of new data center load can contribute to affordability by reducing electric bills by 1% or more,” she said in the company’s quarterly investor call in April.
A gigawatt is enough power to run ten, 100-megawatt data centers. By utility experts, the total cost of preparing the grid to power those ten centers could reach $1 billion.
Right now, PG&E says its reviewing applications for data centers representing power demand of as much as 10 gigawatts, with projects representing about half that new demand in the final engineering review phase.
As more centers go online, PG&E says fixed costs will be shared more widely and should rates overall, even as it invests $23 billion over five years to meet Northern California’s evolving power demands.
But Beier, whose think tank recommends Padilla’s regulatory efforts, says experts he’s talked to are wary of claims that the state’s boom could lead to lower rates.
“Because it is not yet proven that this is going to happen,” Beier said. “This has not happened in other states that have large numbers of data centers.”
The state Senate’s appropriations committee is considering Padilla’s bills and other data center legislation this week.