SHERI L. BONSTELLE
Chair, Land Use & Development
[email protected]
GreenbergGlusker.com
Over the past few years, the pace of AI investment, advancement, and consumer use has increased exponentially as the development of AI data centers has been hampered by limited infrastructure for water and power, community outcry, and increased state and local regulations. California has the third-highest number of data centers in the country after Texas and Virginia. Several jurisdictions, including Los Angeles County, have adopted temporary moratoria or outright bans on data center development to limit their community impact.
California State Senator Steve Padilla notes “Data centers are getting built at an extreme rate without adequate guardrails, creating air quality, water supply, and energy supply challenges for local communities across the country.” He proposes a balance that will allow the substantial economic benefit of a hyperscale project for a region while also preventing potential public health impacts and soaring energy costs. On September 21, 2026, Governor Newsom signed seven data center bills, which he termed “the most comprehensive data center laws in the nation.” None of the bills imposes a moratorium, but together they require a thorough environmental review of all data center projects that focus on constructing and funding sufficient electrical and water infrastructure. These bills will add time, paperwork, and cost for data centers, and will, most importantly, increase community involvement in the permitting process.
The centerpiece, SB887, requires environmental review under the California Environmental Quality Act (CEQA) for every data center project in California. It eliminates any categorical CEQA exemptions for this use. There are exceptions for certain publicly owned or funded facilities, higher-education research centers, and other utility uses. It also gives local communities a voice by mandating a discretionary review process, even where zoning allows data centers by right. Under SB887, the Governor may certify qualifying data center projects as environmental leadership development projects, which will streamline judicial review of CEQA litigation.
The data center bills also create specific tariffs to ensure that data centers pay their fair share of electrical grid infrastructure and generation costs. SB886, the California Technology Innovation and Ratepayer Protection Act, provides that the California Public Utilities Commission (CPUC) will establish new tariffs by January 1, 2028, requiring data center operators to pay for all electrical service infrastructure, interconnection, transmission, distribution, and generation costs. The bill also imposes an early termination fee within the first 10 years. To address potential future wildfire damage, AB2383 also requires data centers to pay tariffs for incremental generation costs, wildfire mitigation and liability, and electrification and environmental programs. SB1168 directs the CPUC to assess rate structures to ensure data centers pay a reasonable share of transmission and distribution needs and costs associated with load increases and energy procurements to alleviate cost pressures on residential ratepayers.
The package also requires reporting and disclosure on water use, electrical use, and noise levels so local agencies can evaluate infrastructure sufficiency and potential impacts. Under AB1577, data center operators must provide local agencies information on energy consumption, electricity generation, and sound levels at the permitting stage. The bill also compels annual reporting to the California Energy Commission (CEC) regarding power and fuel usage, cooling system data, noise levels, and renewable energy use. AB2619 directs data center applicants to provide information on water source, use, and volume prior to obtaining a business license. AB2469 requires that applicants pay for the full cost of any required water conveyance, treatment or storage, or distribution infrastructure improvements to serve the project. The bill also compels preparation of a detailed water-supply assessment and a water scarcity plan, and disclosure of specific workforce information  so that the agency can determine the extent of the economic benefit for the region.
For developers, investors, and landowners, the State’s directive is clear. Plan for longer entitlement timelines and higher costs. Projects in the pipeline should assess water and power availability at site selection, budget for infrastructure and tariff obligations, and engage the community early, because local review is now mandatory. Owners leasing or selling land to data center users should also revisit deal terms to allocate these new risks. With the laws taking effect on January 1, 2027, the time to prepare is now.
