The Santa Clara County seat is touting its partnership with Pacific Gas & Electric, claiming the city is “the West Coast's premier destination for data center development.” The investor-owned utility now estimates it has enough capacity in its planning process to boost the city's electricity use to nearly three times its current peak.
Those plans are forcing major grid improvements, PG&E and city officials say, while raising questions about who pays for them and whether the state can maintain clean energy.
Panelists at a CalMatters event in downtown San Jose clashed over key issues. They included a local official working with PG&E to build the city's data center, a technology advocate urging California to seize the economic moment, a Stanford energy expert pushing for a more modernized grid, and a utility watchdog skeptical of the promised benefits of AI.
Their discussion focused on how quickly California should act to adapt to new demand, what information the public should be entitled to, and how to prevent customers from bearing the cost of infrastructure that may never be fully utilized.
Proposals to more strictly regulate data center development died in the Legislature this year. In the future, several state agencies and commissions are expected to initiate further discussions, including the California Energy Commission, the Little Hoover Commission, and the California Public Utilities Commission.
How much power will California's new data centers really need?
The rise of AI is complicating efforts by regulators and utilities to forecast how quickly data centers will grow and how much power they will need. Companies can propose large facilities without committing to building them, the computing demands behind AI are changing rapidly, and cooling needs vary across the state. These factors make it difficult to determine long-term energy needs.
According to the state's electricity demand forecast, utilities report that data centers, in planning documents, have requested 18.7 gigawatts of service capacity. That's enough to power about 18 million homes, compared to an estimated 14 to 15 million in California. Regulators do not expect all such projects to be built, and assume that those that do will come online gradually and operate at less than requested capacity, producing a forecast of between 4 and 6 gigawatts by 2040.
Liang Min, who directs Stanford's Bits & Watts Initiative and a speaker on the CalMatters panel, said forecasting is particularly difficult because companies are deploying new AI applications (or “application layers,” as he put it) at breakneck speed. They include products like ChatGPT that use large language models. No one knows what applications will take off, and those uncertain bets are placing huge demands on the power grid.
“Right now we are really struggling,” Min said. “The risk is extremely high at the application layers.”
The Public Advocates Office, an independent consumer watchdog within the California Public Utilities Commission, recently warned that the rapid growth of data centers could force Californians to pay billions of dollars in grid upgrades if the projects never materialize or use far less energy than promised.
“Taxpayers could end up paying for costly infrastructure improvements that may not be needed for many years, or may not be needed at all,” the office said in its comment.
Min said forecasting data center load is a national challenge, but California will need better tools to keep rates under control, meet its clean energy goals and remain competitive with states competing to attract data centers and high-paying tech jobs.
Local officials have also begun to grapple with the uncertainty. In San Jose, city energy officials say they are reluctant to purchase additional power until they know which projects will actually be built. “We don't want to buy more energy than we need,” said panelist Lori Mitchell, director of San José Clean Energy, the city's public electricity provider. “That's job number one.”
What are the environmental concerns surrounding the rise of data centers?
California's data center boom is generating a wave of environmental concerns that state officials are only beginning to understand. Those concerns center on water use, carbon emissions linked to growing energy demand and air pollution caused by diesel backup generators.
Air quality is a particular concern. Although backup generators operate only intermittently, their presence is concentrated in a handful of regions. In Santa Clara County, where many facilities are close together in dense industrial areas, local impacts could be greater simply because there is a lot of equipment packed into a small space.
However, the state still has limited visibility into what data centers are doing. Attempts to demand more transparency stalled this year amid opposition from the tech industry. The only measure that became law gives regulators the authority to determine whether data centers are driving up costs, but stops short of requiring environmental reporting.
Ahmad Thomas, executive director of the Silicon Valley Leadership Group and another panelist, said his group opposed the electricity and water disclosure measures because they would make California less competitive.
“It's very difficult to see a world where California is at the forefront of AI if we don't have an approach to data centers that is at least slightly competitive with other states,” he added.
Consumer advocates say the lack of information leaves communities unprotected. “We certainly think there needs to be more transparency; that's a good thing,” said panelist Mark Toney, executive director of the Utility Reform Network, a ratepayer advocacy group.
Will data centers slow California's shift toward clean energy?
The rapid growth of data centers could slow California's clean energy transition if it keeps the state tied to natural gas. And some of the alternative carbon-free energy sources that could meet your energy needs are deeply controversial among environmentalists.
The state has committed to reaching 100% carbon-free electricity by 2045, but still relies heavily on natural gas plants during hot summer days. A recent report from environmental think tank Next 10 and UC Riverside estimated that carbon emissions from data centers nearly doubled between 2019 and 2023, largely due to gas-fired generation, underscoring how even a relatively clean grid can struggle to absorb AI-driven load without increased emissions.
State leaders are making policy changes as demand for AI grows. This year, California approved joining a broader Western energy market, a move driven in part by new demands on the grid, including data centers. Critics warn that the change could expose the state to dirtier electricity from other states and weaken its control over clean energy standards.
Stanford's Min argues that California will have to resort to options that some environmentalists would prefer to avoid. That includes conserving existing resources, such as the Diablo Canyon nuclear plant. In a recent report, Min argued that the state will also need more “clean, firm” energy (resources that can run 24 hours a day), such as geothermal energy or natural gas plants with carbon capture.
PG&E agrees. Spokeswoman Stephanie Magallon told CalMatters in an email that nuclear power, carbon capture systems, and large solar and battery projects are options being considered to power data centers in her region. But environmental justice critics in California have opposed carbon capture technology, calling it an unproven technology that risks expanding the use of fossil fuels.
Mitchell said community option aggregators can manage the load of the new data center while keeping energy clean and affordable. San Jose's mix is already 60% renewable, and he said the biggest opportunity is flexibility: getting data centers to shift their use away from the hottest afternoons so the city can avoid purchasing additional power.
Will data centers increase your electricity bill?
The rise of data centers in California is changing the fight over electricity bills, exposing a divide over whether these new customers will lower costs or raise them for everyone else.
PG&E maintains that adding large users, such as data centers, can reduce rates because fixed network costs would be spread over more customers. It also claims that the grid is underutilized on average (operating at about 45% of capacity), although the grid faces real strain during the hottest hours and in parts of the system that typically operate close to their limits. If data centers can be connected in places with available capacity, PG&E maintains, they could help spread costs without worsening congestion.
Toney, another panelist, urged the state to slow down, warning that California is planning major infrastructure without knowing which data centers are real or how their costs will impact customer bills.
“I'm concerned that we're involved in what I call faith-based policymaking,” he said. “The benefits are very speculative, but the costs are very real.”
Some states, Toney said, have begun to tighten rules around data center growth. A law in Oregon will require data center network costs not to be included in household bills. A Minnesota law will give very large data centers their own billing category so regulators can keep their costs separate from other customers' electricity bills.
“This issue of data centers and the connection between affordability and clean energy is of national concern, and California is really behind on this,” Toney said. “There's this mythology that California is the leader all the time.”
Lazo writes for CalMatters.
