As California moves to regulate AI-era infrastructure, policymakers should focus on grid planning, reliability and jurisdictional realities rather than treating data centers as a uniquely new problem.
Data centers are in the eye of the storm as nationwide protests are intensifying over the proliferation of development across the country.
Calls for bans and moratoriums have grown among residents and some government entities, as the public has serious concerns about water and energy consumption. Those protests have reached San Diego County as the Board of Supervisors is backing Senate Bill 886 and 887, while the city of Escondido approved a 45-day moratorium on data centers on Wednesday.
Data centers have been around for at least 60 years, but the modern versions are unlike anything utilities have ever dealt with historically. The centers power our daily lives, from email, cellphones, cloud storage, streaming, government, airports, hospitals, police and fire departments, AI, search engines, social media, video conferencing, online shopping, banking, traffic management, video games, maps, and enterprise software.
The amount of data being generated, stored and processed continues to grow exponentially.
However, SB 886 and the city’s moratorium face significant uphill battles against federal law and regulations stemming from the Federal Energy Regulatory Commission (FERC), the North American Electric Reliability Corporation (NERC), the Defense Production Act (DPA), Federal Power Act (FPA) tariff structures, the Dormant Commerce Clause (DCC) and risks to federal telecommunications and national security.
The federal government has made it clear the AI arms race and expanding data storage are critical to keep pace with increasing threats from abroad.
SB 886 would require the California Public Utilities Commission to create special electricity tariffs for large data centers (hyperscale), ensuring any high-demand facility pays the costs of transmission, distribution, generation, and interconnection infrastructure needed to serve them rather than shifting those costs onto residential and other utility customers. The bill also requires long-term power commitments, assigns data centers responsibility for certain grid upgrade costs, mandates participation in demand-response programs and prevents stranded utility investments if a facility fails to deliver as projected or leaves early.
California creates special tariffs and cost-recovery for specific customer types (industrial, commercial, farms, etc.). The question becomes which costs fall under state jurisdiction versus FERC-jurisdictional transmission cost allocation. It’s the specific provisions in SB 886 that may conflict with existing FERC and California Independent System Operator (CAISO) rules.
Data centers are just another example of a large-load customer, like airports, ports, military bases, government buildings and so forth. The big issue is how utilities plan for and allocate the costs of new transmission, substations, transformers, interconnections and generation years before the load materializes, while also maintaining reliability for existing customers.
This is what is impacting rates today and future growth and reliability.
Additionally, SB 886 risks direct conflict with FERC’s cost-allocation rules, the California Independent System Operator (CAISO) tariff structures and reliability mandates from NERC. Under federal regulations, states can’t reassign costs for interstate transmission or wholesale market infrastructure.
SB 886 states it will “assign cost responsibility for all transmission facility upgrades triggered by a facility interconnection to the applicable participating customer.”
Transmission upgrades are planned, approved, and cost-allocated under FERC-jurisdictional rules through CAISO and federally approved tariffs.
Utilities already deal with a large backlog of interconnection requests and constraints, transformer shortages and speculative load requests. The concern is the planning around future reliability and growth.
The challenge, though, isn’t unique to data centers. Utilities regularly must plan for large-load customers and determine who pays for the infrastructure and generation resources. The question of cost comes down to which costs and which regulator has the authority to assign them.
California can’t decree who pays for transmission facilities if FERC-approved cost-allocation rules already govern those facilities.
The bill would have stronger standing if it limited cost obligations to distribution-level or local infrastructure. In that case, the legal risks of conflicting with federal jurisdiction would be significantly reduced.
Another component of this issue is utility companies. They cannot unfairly discriminate against a specific customer, in this case, hyperscale data centers.
Utilities are permitted to have separate tariffs and rate structures for large-load customers.
For example, there are rates/tariffs for customer classes (residential versus commercial versus industrial), economic development, large-load, transmission service, and demand response. They can do this provided those tariffs are approved and applied consistently.
California’s backward energy policy, meanwhile, is catching up at a frightening pace. One of the main concerns around data centers is the energy load they carry.
State and federal legislators have zero tolerance for fossil fuel generation, leaving unreliable clean energy sources as the primary generator. Sadly, the cleanest energy sources have been taken to the woodshed in the form of the state’s nuclear reactors.
Nuclear doesn’t burn fossil fuels and emits very little carbon dioxide during operation, so there is minimal air pollution; it has the highest energy density and is one of the major low- and zero-carbon technologies used in pathways to reduce emissions and limit climate change, according to the Intergovernmental Panel on Climate Change.
Five reactors have been shut down since 1976 — the three units at San Onofre, Rancho Seco and Humboldt Bay. Those five combined for 3,522 megawatts (the total amount at any given moment when running at full power) and between 26 and 29 terawatt-hours per year.
But since the direction of the state is solar, land consumption becomes another albatross.
Using the Imperial County data center proposal as an example, it would require at least 13 square miles of solar panels and batteries to power the hyperscale facility. Solar panels and batteries degrade and may top out at 20 years of useful life, rather than up to 50 to 100 years for gas-powered or nuclear power plants.
But when it all comes down to it, the lack of foresight, ignoring experts and underestimating energy will haunt the state. And that time is coming soon.
Refer friends to North County Pipeline
