Legislation Regulating Electricity Rates For Data Centers In California Heads To The Governor’s Desk

The California Legislature passed SB 886 (Padilla), the California Technology Innovation and Ratepayer Protection Act, which requires the California Public Utilities Commission (Commission) to adopt new tariffs and update existing electric rules to ensure that electric utility costs for serving data centers are not shifted to ratepayers. Governor Newsom has until the end of September to sign or veto this bill and the accompanying data center power regulation bill, AB 2383 (Zbur).

Data Center Energy Demand Has Grown Rapidly, Driving Up Grid Costs for Other Ratepayers

As large-load data centers increasingly request electricity service, costs have risen for other customers—driven primarily by upgrades and new construction of transmission infrastructure. Because transmission infrastructure is expensive to build, maintain, and upgrade, SB 886 targets data center-driven transmission costs. Existing law already requires the Commission to assess the extent to which these new data center loads result in cost shifts to other customers and publish its findings by January 1, 2027.

Since 2024, the Commission has been working to establish new rules governing retail electricity customers seeking interconnection at the transmission level, with a focus on data centers. In February 2026, the Commission issued a schedule for the next phase of proceeding A.24-11-007, in which it will consider additional electric rule requirements for transmission interconnection, including mechanisms for covering utility costs. Certain provisions of SB 886 overlap with issues that are currently included in the ongoing rulemaking proceeding.

SB 886 Requires the Commission to Adopt New Tariffs and Update Electric Rules by January 1, 2028

SB 886 requires the Commission to adopt new tariffs and update existing electric rules by January 1, 2028, for the interconnection of data centers and the provision of retail electric service, transmission, distribution, and generation services to data centers. When adopting the new tariffs and updating electric rules, the Commission must:

• Evaluate the risks and benefits of the tariffs to ratepayers other than data centers;
• Ensure that the tariffs prevent the creation of stranded costs for, or cost shifts to, non-data center ratepayers; and
• Ensure for unbundled customers that costs generally included in the generation component of a customer's bill are assessed separately from charges generally included in the transmission and distribution components of the bill.

SB 886 Requires a New Interconnection Tariff for Data Centers Connecting at the Transmission Level

The Commission must also establish a tariff for the interconnection of a data center seeking to receive retail service at the transmission level. The interconnection tariff will only apply to data centers that enter into a new transmission interconnection agreement on or after January 1, 2027. The tariff must comply with several requirements:

• Data centers must submit interconnection applications that disclose each instance in which the data center has submitted an application for that facility in other electrical corporation service territories or jurisdictions.
• The tariff must assign cost responsibility for all transmission facility upgrades and usage to the tariffed data center. To the extent permitted under federal law, these costs must include shared transmission grid network upgrades needed to accommodate the interconnection of the data center or increase the flow of electricity across the electrical grid.
• A tariffed data center must be permitted to receive refunds of a portion of its initial nominal dollar contributions to interconnection costs, but only to the extent that actual annual net revenues cover the costs of energization, the costs of providing electric service, and other costs allocated by the Commission to the tariffed customer. Refunds must be based on the materialization of the tariffed customer's load and shall not exceed 75% of the annual transmission revenue received from the tariffed customer.
• An early termination fee must be assessed against any tariffed data center that departs the electrical system within 10 years of the initial interconnection of the facility or fails to reach its projected level of electricity demand and consumption. The early termination fee must not be less than the revenue gap between the originally projected demand and actual energy consumption of the facility over the minimum 10-year term.

SB 886 Authorizes a Voluntary Demand Response Program for Data Centers

SB 886 also authorizes, but does not require, tariffed data centers to participate in a demand response program established for data centers by the Commission. Demand response involves dynamically increasing and decreasing electricity use in response to economic or reliability signals—increasing use when demand is low on the broader grid and decreasing use when demand is high. Participating data centers can also contribute to “beneficial electrification” by siting their demand in areas with excess capacity in order to minimize strain on the overall grid. Participation in the demand response program must not result in any net costs to non-tariffed electric customers.

AB 2383 Is a Companion Bill That Establishes Parallel Tariffs Including Generation Requirements

SB 886 is linked to AB 2383, which requires the Commission to establish a transmission and distribution service tariff as well as a generation tariff for data centers. AB 2383 contains parallel provisions, including the establishment of a voluntary demand response program for data centers.

The required generation tariff must ensure that procurement of generation resources meets procurement requirements set forth by the Commission, statutory clean energy targets, and other state clean energy policies. The generation tariff must also require data centers to provide equitable contributions to reliability and other programs funded through charges generally collected through the generation component of a customer’s bill. Further, the generation tariff must provide that data centers must pay for incremental generation cost increases resulting from their electricity consumption for a minimum period of 10 years.

On or before January 1, 2027, electric service providers and community choice aggregators must also adopt generation tariffs that meet AB 2383 requirements. The bill also requires that newly filed transmission and distribution service tariffs ensure that data centers pay a reasonable share of the costs related to wildfire mitigation, wildfire liability, electrification and environmental programs, and other societal cost obligations typically collected from distribution-level ratepayers.

Practical Implications and Key Takeaways

If Governor Newsom signs SB 886 and AB 2383 into law, data center developers and electricity providers should prepare for several near-term impacts:

• Data center developers considering California sites should model the full cost of transmission interconnection into their project economics. Under SB 886, developers will bear cost responsibility for all transmission facility upgrades and usage, including, to the extent permitted under federal law, shared network upgrades.
• Developers with pending or planned interconnection applications should track the Commission’s rulemaking closely. The bill overlaps with the ongoing Commission energy tariff proceeding, and the Commission must adopt new tariffs by January 1, 2028. Developers that enter into new transmission interconnection agreements on or after January 1, 2027, will be subject to the new tariff.
• Data center operators should evaluate the voluntary demand response program as a potential cost mitigation tool. While participation is optional, siting in areas with excess grid capacity and investing in on-site battery storage or generation could reduce overall costs and improve a facility's positioning under the new regulatory framework.