California Passes Data Center Grid Cost Bills as Governor Faces Signature Decision
AB 1168 and AB 2589 clear the legislature and land on Newsom's desk, forcing a reckoning over who pays for the grid buildout powering the AI boom.
California's legislature closed its 2026 session having passed two bills that require the state's utility regulator to examine whether data centers are bearing their share of grid costs, with both measures now awaiting Governor Gavin Newsom's signature, Utility Dive reported on September 1 (2026-09-01). The session itself was largely overshadowed by wildfire cost proceedings, but the data center bills advanced anyway.7
AB 1168 directs the California Public Utilities Commission to assess whether rate structures ensure data centers pay a reasonable share of transmission and distribution costs. AB 2589 requires the CPUC to evaluate the full effect of federal laws on California's energy market. Both passed.7
The scale of what is coming through PG&E's queue gives those mandates weight. Pacific Gas & Electric has 10 gigawatts of data center demand in its 10-year pipeline, equivalent to the power needed for roughly 7.5 million homes, Canary Media reported on August 18 (2026-08-18). PG&E's argument is that the load growth generates billions in tax revenue and, by spreading fixed grid costs across more customers, lowers bills for existing ratepayers.5
The bills push back on that framing. If data centers don't absorb their full share of transmission and distribution investment, the remainder falls on residential customers through higher charges. The legislature's decision to act reflects skepticism that the current rate structure handles that allocation correctly.7
California is not acting alone. New Jersey Governor Mikie Sherrill signed legislation on July 7 (2026-07-07) requiring state regulatory review of supplemental transmission projects, with a companion bill mandating utilities remain PJM Interconnection members, Utility Dive reported on July 8 (2026-07-08). Sherrill cited data showing supplemental projects in New Jersey totaled $14.7 billion from 2008 to 2025, accounting for 79% of total ratepayer transmission expenses.4
The federal dimension complicates both states' efforts. The Federal Energy Regulatory Commission stepped into the interconnection backlog on June 18 (2026-06-18), responding to pressure from technology companies, governors, and the White House to accelerate data center grid connections, E&E News reported on June 22 (2026-06-22). How FERC's moves interact with state-level cost allocation rules is precisely what AB 2589 is meant to examine.3
The demand projections behind the policy scramble are large. A Lawrence Berkeley National Laboratory analysis backed by the Department of Energy projected data centers could account for 9.5% to 15% of U.S. electricity use by 2030, E&E News reported on June 22 (2026-06-22). A Business Insider analysis cited by Oilprice.com on June 11 (2026-06-11) estimated that data centers permitted through 2025, if fully built out, would consume between 224.3 and 358.8 terawatt-hours annually, a 50% increase over the prior year.2,1
The Trump administration has pushed tech companies toward building private power plants co-located with data center campuses, arguing the approach protects ratepayers from rising prices, Oilprice.com reported on June 11 (2026-06-11). Critics in that report warned the strategy may shift costs rather than eliminate them, particularly if private plants depend on grid backup or if large industrial loads leaving the rate base concentrate fixed-cost recovery on smaller customers.1
The Ohio case, cited in a War on the Rocks analysis published September 1 (2026-09-01), illustrates the structural problem: the same project can satisfy a regional market's interconnection criteria while the state bearing its distribution costs reaches a different conclusion about who should pay. Financial commitments that separate firm demand from speculative queue entries are being tested there.6
For utilities and developers tracking California, the immediate question is whether Newsom signs. If he does, the CPUC will need to define what a "reasonable share" of grid costs actually means for data centers — a proceeding that will draw out over years of rate cases and filings. PG&E's 10 GW pipeline represents capital planning built on growth assumptions. A cost-allocation ruling that makes California more expensive for hyperscalers than competing states could redirect some of that queue. That would leave existing ratepayers holding transmission investments sized for load that never materialised — the precise outcome the bills are designed to prevent.5,7