On September 21, 2026, Governor Newsom signed a package of seven bills establishing new requirements related to water, energy, infrastructure, and environmental review for data center development in California. The legislation addresses several aspects of project planning, including water supply, electric infrastructure and utility costs, environmental review, and ongoing resource-use reporting. The bills generally go into effect January 1, 2027, with some requirements phased in by 2028.
For data center developers, operators, investors, and hyperscale users, these changes introduce new considerations throughout the project lifecycle. Understanding the requirements early can help project teams with site selection, design, permitting, utility coordination, and operational planning.
Water Planning Moves Earlier in the Development Process
AB 2469 requires applicants to demonstrate that sufficient water resources are available before a city and/or county approve a discretionary or ministerial permit or other entitlement for a data center construction or expansion. Such applicants must submit a water supply assessment, projected water use and efficiency measures, estimated workforce needs, and assume responsibility for water infrastructure improvements necessary to serve the facility. Starting January 1, 2028, applicants must also provide a water scarcity plan. A water scarcity plan must identify water reduction measures the data center will implement during each level of drought severity defined by the United States drought monitor. Submitting water scarcity plans in order to obtain the city and/or county permits will require data center owners and operators to determine water reduction measures that are compatible with the data center design as well as define new roles and responsibilities to ensure the plan’s measures are enacted upon during drought years.
As a result, developers should begin evaluating water availability, cooling technologies, reclaimed water opportunities, and infrastructure requirements during site selection rather than after project design has begun.
CEQA Strategy Moves Up in Project Planning Timeline
SB 887 changes the California Environmental Quality Act (CEQA) framework for California data center projects by significantly limiting the availability of categorical exemptions while creating an opportunity for qualifying projects to pursue Environmental Leadership Development Project (ELDP) certification. ELDP certification can streamline the CEQA process, including expedited judicial review and concurrent preparation of the administrative record. Eligibility is based on specific project criteria related to areas such as grid costs, zero-carbon energy and storage, water efficiency, and community benefits.
These provisions make the anticipated CEQA pathway and potential ELDP eligibility increasingly relevant considerations when developers are considering project design, entitlements/permitting, and schedule. Put simply, data center projects will now be expected to go through some level of CEQA review. The extent of the CEQA review and documentation required will depend on project specifics and should be evaluated early in the project lifecycle.
New Utility Requirements Affect Project Economics
SB 886, AB 2383, and SB 1168 address utility tariffs and cost allocation associated with serving large data center loads. Historically, developers often treated utility tariffs and electricity rates as operational considerations addressed near project completion. These new bills effectively move those discussions to the front end of project development.
SB 886 will require the California Public Utilities Commission (CPUC) to establish a framework for utility tariffs, interconnection requirements, and cost allocation mechanisms designed to prevent costs from being shifted to other ratepayers. While the CPUC must establish this framework by January 1, 2028, the requirements will apply to data centers that enter a new transmission-level interconnection agreement on or after January 1, 2027.
AB 2383 requires utilities and certain energy providers to develop specialized tariffs for qualifying data centers and establish mechanisms to recover incremental generation costs by January 1, 2028. The legislation also authorizes requirements such as collateral, minimum payment commitments, and cost-recovery provisions to address risks associated with large-load customers.
SB 1168 directs regulators to develop rate structures for allocation of transmission, distribution, and generation-related costs associated with data center power loads.
These laws suggest that future data center projects may face additional review of power demand forecasts, load growth assumptions, interconnection requests, and long-term electricity procurement strategies.
Reporting and Transparency Requirements Continue After Startup
AB 1577 and AB 2619 establish new reporting and transparency requirements related to energy use and water consumption. While implementation details will continue to evolve, both existing and new data center operators should anticipate increased expectations regarding resource-use tracking, disclosure, and documentation. Organizations that establish robust monitoring, metering, and reporting systems during project development will likely be better positioned to comply with future requirements and respond to regulator, utility, or community inquiries.
Key Actions Recommended for Developers
Organizations evaluating data center developments in California should consider several near-term actions:
- Evaluate water availability and infrastructure constraints during site selection.
- Conduct preliminary utility and interconnection assessments earlier in project development.
- Incorporate CEQA strategy into initial project planning.
- Review potential impacts of future tariff structures on project economics.
- Assess opportunities for onsite renewable energy and zero-emission resources.
- Develop internal systems capable of supporting future energy and water reporting obligations.
- Engage environmental, utility, permitting, and engineering teams early to identify project risks.
Looking Ahead
California’s new data center legislation reflects an evolving regulatory landscape for large-load facilities with respect to water resources, electric infrastructure, and environmental review. The laws introduce new requirements and potential costs. Developers that proactively incorporate water planning, environmental review, utility strategy, and reporting requirements into the earliest stages of project planning will be better positioned to navigate the new landscape and account for it in project schedules as the new requirements take effect.
Need assistance evaluating how California’s new data center laws may affect your upcoming project or existing facility? Contact Emily Kolb and Emily Wen to assess permitting, CEQA, water resource, air quality, utility, and environmental compliance considerations throughout the project lifecycle.
