California's 2026 Data Center Laws: What You Need to Know

California Gov. Gavin Newsom on September 21, 2026, signed seven new laws into effect that collectively change how new data centers are approved, powered and supplied with water in the state. Most take effect January 1, 2027, with several requirements phasing in during 2027 and 2028.

None of these laws bans or establishes a moratorium related to data centers, and each law will not necessarily apply to every new data center project entitled or operating in the state. These laws, taken together, reflect a national trend of legislative efforts to require data centers to internalize the cost of water infrastructure, grid interconnection and environmental review costs and increase disclosure of energy and water use. The laws codify and make enforceable the "bring, buy, or build" commitments that many large-scale data center developers already bring to the table.

Collectively, these laws will add time, uncertainty, documentation, cost-responsibility obligations and upfront financial commitments to the development process. As a general matter, environmental review, water supply and grid interconnection cost are best treated as gating items addressed during due diligence early in a project's evaluation rather than as downstream details. Understanding the function, trigger, and potential burden or opportunity of each law will allow applicants to position their projects for success and navigate around pitfalls.

Why California Acted

The package of laws responds to the perceived rapid growth of data centers driven by artificial intelligence. Legislators expressed concerned about three things: strain on the electric grid (and the risk that utilities build costly infrastructure whose cost is shifted onto ordinary ratepayers if a facility never fully operates), strain on limited water supplies used for cooling and a lack of reliable information for state and local planners about how much energy and water these facilities actually use. The removal of the California Environmental Quality Act (CEQA) categorical exemptions is likely a response to the perception that the environmental impacts of data centers are not fully considered before approvals are granted. This backdrop helps explain why several of the laws are built around disclosure, cost-responsibility and "the "build, bring, or buy" principle typical in larger scale data center development.

The new laws include the following, grouped into permitting, reporting and utility costs.

Laws Affecting Land Use Permitting Process

• Senate Bill (SB) 887: Eliminates data center access to CEQA categorical exemptions and adds a litigation-streamlining option for qualifying projects
• Assembly Bill (AB) 2469: Requires water-supply assessments and other water-related conditions before land-use approvals are granted, including ministerial permits

Laws Requiring New Reporting Obligations

• AB 2619: Requires water use reporting for data centers as part of business licensing
• AB 1577: Requires energy information for data centers to be provided to both the state and local permitting agencies

Laws Directly Affecting Utility Providers (Electricity Cost and Interconnection)

• AB 2383: Directs utility transmission, distribution and generation tariffs for data centers
• SB 886: Directs a transmission interconnection tariff and assigns cost responsibility to data centers
• SB 1168: Directs a California Public Utilities Commission (CPUC) study on future data center rate design

Laws Affecting Land Use Permitting

SB 887 (Sponsored by Sen. Steve Padilla): Environmental Review Is Now Mandatory, and a Faster Litigation Option Exists for Qualifying Projects

Background: Under CEQA, a project generally needs environmental review only if the approval is "discretionary" (the agency exercises judgment) rather than "ministerial" (the agency simply checks boxes). CEQA also has "categorical exemptions," which are categories of projects the state has predetermined have no significant environmental impact and can skip review (e.g., the "Class 1" Existing Facilities Exemption or "Class 32" Infill Exemption). Some data centers, particularly those being installed inside an existing building, had been approved as ministerial or exempt.

What SB 887 Changes: SB 887 prohibits any data center project from qualifying for a categorical exemption for any discretionary approval after January 1, 2027. In practical terms, a data center project should be expected to go through CEQA review, at minimum an initial study and negative declaration, and potentially a full environmental impact report if there is evidence of significant effects. This will add time, cost and more public scrutiny to entitlement and may create greater litigation risk.

Given the potential delay and uncertainty surrounding the CEQA process, CEQA-compliant options such as tiering from existing CEQA documents, the use of addendum, and focused or supplemental Environmental Impact Report (EIR) should be analyzed. Additionally, the upfront costs imposed by SB 887 may also incentivize development of larger data center campuses, which are capable of supporting multiple, but independent, facilities and be constructed under a single EIR. Such approaches will be dependent on project specifics and market conditions.

Important Scope Questions: SB 887 defines a "data center" for the purposes of CEQA very broadly, as "a facility or part of a facility that houses computing infrastructure … for the primary purpose of processing, storing, or distributing electronic data." The statute does not specify a minimum size or other trigger. Because law defines data center as "part of a facility," the law could arguably apply to a building that merely contains a dedicated server room. It is likely that state agencies or courts will establish more clarity on this definition, likely focused on differentiating projects related to their "primary purpose." Until the scope of the law is settled, a project with a substantial dedicated computing or server component may be treated as potentially subject to these rules. It is also important to know that AB 877 exempts from the definition of "data center" the following: "publicly funded research facility," "public safety facility," "publicly funded national security facility," "publicly owned facility," "[o]ther utility facilities, including, but not limited to, an asset of a facilities-based telecommunications service provider" or "research facility operated by an independent institution of higher education, as defined by Section 66010 of the Education Code." These exemptions are also not well defined and should also be anticipated to be interpreted over time.

The Tradeoff, a Limited Streamlining Benefit: SB 887 also lets the governor certify a qualifying data center as an Environmental Leadership Development Project (ELDP). An ELDP is still subject to full CEQA review, but any lawsuit challenging it is placed on an expedited court track (under this framework courts aim to resolve the case, including appeals, on a compressed schedule). However, qualifying for litigation streamlining requires being able to meet demanding conditions, including:

• paying the full cost of grid interconnection up front
• not increasing fossil fuel consumption within the state
• using specific zero-carbon energy storage
• relying on behind-the-meter zero-carbon generation to the maximum extent feasible
• running on 100 percent zero-carbon electricity within five years of operation (of which 75 percent shall be newly developed)
• using recycled water and water-efficient or waterless cooling
• entering one or more community benefits agreements
• entering an enforceable commitment to fully pay all electrical grid investments and meet prevailing-wage and skilled-workforce construction labor standards

The Office of Land Use and Climate Innovation, working with the state's energy-planning agency, the California Energy Commission, will publish uniform statewide standards for meeting these conditions.

Practical Significance: A longer anticipated CEQA timeline and greater cost should be built into any California data center project planning. Where a project can meet the high technical, environmental and labor bar, the ELDP track can meaningfully reduce litigation risk and delay, but the eligibility conditions are substantial and are best evaluated at the design stage.

AB 2469 (Assembly Member Diane Papan) – Water Conditions on the Local Permit

Background: Cities and counties control land use permitting. For large projects that need environmental review, existing law already requires a "water supply assessment," which is a study of whether enough water exists to serve the project over a 20-year horizon in normal and dry years. Prior to AB 2469, that framework applied to large housing and commercial projects based on size, including industrial projects over 400,000 square feet or with more than 1,000 employees. AB 2469 now broadens this to potentially apply to all data centers regardless of size or number of employees.

What AB 2469 Requires: AB 2469 prohibits a city or county, including charter cities, from approving a permit, whether discretionary or ministerial, for building or expanding a data center in a way that increases peak water use, unless the applicant provides all of the following:

1. a water supply assessment
2. beginning January 1, 2028, a "water scarcity plan," which is defined as a report that includes measures to be implemented across escalating drought levels (for example, staged reductions and temporary curtailment)
3. projected water use and water-efficiency measures
4. workforce disclosures (workforce composition, job classifications, duration of employment, wage ranges and benefits, and what share of the workforce lives in the county and state)

In addition, the applicant must take on full financial responsibility for any water infrastructure improvements (conveyance, treatment, storage or distribution) needed to serve the project, as determined by the water supplier.

Important Scope Question: AB 2469 applies to any "increase in peak water use" but does not define how the water-use baseline is defined, and this will be an area that should be expected to be refined through interpretation and caselaw over time. 

Practical Significance: Water supply for a data center should be expected to be a more significant permitting issue and for data centers of all sizes. And, importantly, because AB 2469 applies to ministerial as well as discretionary permits, these new requirements could apply to entitled data centers that have not yet obtained all necessary ministerial building permits for completion and operation. It is also notable that the law includes the disclosure of workforce requirements in the context of a water supply assessment and should be anticipated to bring more scrutiny to projects that trigger this requirement and increases the value of selecting sites with existing, baseline water use (noting the lack of a definition of a specific baseline to compare to) and finding technological solutions to avoid increased water use. The statute may also incentivize existing, older, more water-dependent data centers to expand and apply their existing water demand in a more efficient matter as they seek permits for modifications and expansions over time.

In a water-constrained state, where proving up water supply can be challenging, the availability of the water (through conservation efforts) may become the driving force for siting and redevelopment purposes. Early engagement with the water supplier to scope required infrastructure and its cost will be even more important for project planning and budgeting.

Laws Requiring New Reporting Requirements

AB 2619 (Assembly Member Papan) – Water Reporting Tied to Business Licensing and Water-Supply Planning

Background: This is the water-reporting companion to AB 2469. Where AB 2469 conditions construction or expansion permits, AB 2619 applies through the business-license process and regional water planning.

What AB 2619 Requires: Before applying to a city, including a charter city, or county "for an initial business license, equivalent instrument, or permit," a data center owner or operator must give its water supplier a good-faith estimate of expected water use, anticipated water source and projected volumes (maximum day, maximum month and average year) under penalty of perjury. The operator must then report the same estimate on the license application itself, again under penalty of perjury. On renewal, the operator reports the prior year's actual water use and its cooling-system type. The law also formally folds data center demand into local water-shortage planning. AB 2619 categorizes data centers into three sizes depending on power consumption: Type I ("hyperscale," more than 25 megawatts (MW) or more than 10,000 servers), Type II (2 to 25 MW) and Type III (under 2 MW), so even the smallest data centers have reporting obligations.

Practical Significance: Water use must be disclosed at licensing and updated annually. Because these statements are made under penalty of perjury, accuracy will matter and the AB 2619 water estimates should be coordinated with the AB 2469 water-supply submissions so they are consistent.

AB 1577 (Assembly Member Rebecca Bauer-Kahan) – Energy Information Provided to the State and at Permit Stage

Background: California has had limited information on the number and location of data centers, how much energy data centers use, their operation efficiency and effects on the power grid. AB 1577 is intended to close that gap with new energy reporting requirements.

What AB 1577 Requires: For data centers of 10 MW or more of electrical capacity, the data center owner or operator must report:

• To the California Energy Commission (CEC). Basic facility information when the facility is energized or following specified changes to facility operations and then ongoing energy data (electrical load, energy consumption, efficiency, onsite generation and fuel use, and more) reported annually but broken out monthly. The CEC will then be required to fold data center trends into its statewide energy planning starting with its 2029 Integrated Energy Policy Report and publish the data in anonymized, aggregated form. The law includes protections against disclosing customer-specific or personally identifiable data, though the process for claiming trade-secret protection is not fully spelled out.
• To the Local Permitting Agency. At the time of applying for a discretionary permit or land use approval, the owner or operator must provide best available estimates at the time of submission, of expected annual energy use, onsite generation and expected noise levels at the property line. The local agency may use this information for planning, energy supply assessment and for environmental review.

Practical Significance: The local-agency reporting ties directly into permitting and CEQA: The energy and noise estimates submitted become part of the record the agency uses to evaluate data centers 10 MW or more, so they should be prepared carefully and consistently with the rest of the application. Facilities under 10 MW, as well as the same group of certain public, research, national-security and utility facilities exempt under SB 887 and listed above are exempt from AB 1577.

Laws Affecting Utility Providers (Electricity Cost and Interconnection)

The following three laws operate through CPUC, which regulates the investor-owned electric utilities, rather than directly through land use permitting. Although these new requirements will not appear on a local application checklist, they will directly affect the cost, timing and terms of getting power to a site, often the critical path for a data center, and be important in future development and financing decisions.

AB 2383 (Assembly Member Rick Zbur) and SB 886 (Sen. Padilla) – New Utility Rate Rules So Data Centers "Pay Their Own Way"

Background: When a large new load connects to the grid, the utility often must build or upgrade transmission and generation infrastructure. Historically, if those costs were not fully assigned to the new customer, they could be spread to all ratepayers. Legislators are attempting to prevent that cost-shifting for data centers and attempting to protect other customers if a facility departs or never ramps up.

What AB 2383 and SB 886 Require: AB 2383 and SB 886 together form a single new framework, the California Technology Innovation and Ratepayer Protection Act. By January 1, 2028, the CPUC must establish new tariffs or update electric rules for interconnection and for retail electric, transmission, distribution and generation service for data centers in accordance with SB 886, and each community choice aggregator or electric service provider must adopt a tariff for generation service for data centers in accordance with AB 2383.

• AB 2383 covers transmission-and-distribution and generation service and requires community choice aggregators and other retail electricity providers to adopt matching generation tariffs. The CPUC will set a minimum peak-demand threshold at which the tariff applies, and the statute caps that threshold at 25 MW (that is, the CPUC cannot set it higher than 25 MW, though it may set it lower). The tariff reaches only data centers at or above the threshold the CPUC ultimately selects; a facility below that threshold would not be subject to it. Under these tariffs, a data center meeting the threshold should expect requirements to prepay or post collateral for incremental generation cost its load generates, pay a reasonable share of programs such as wildfire mitigation and liability and electrification and environmental programs, and pay fees for failing to complete interconnection, using less power than projected or leaving early. A facility can reduce some obligations by building zero-emission generation onsite.
• SB 886 covers interconnection at the transmission level (relevant for the largest facilities). It assigns the cost of transmission facility upgrades to the data center, limits refunds of those costs (to no more than 75 percent of the utility's annual net transmission revenue from the facility, paid over time as load materializes), and imposes an early-termination fee if the facility leaves within 10 years or fails to ramp up. It requires utilities to publish and update maps showing where a facility can connect without triggering major and costly upgrades, a potentially useful siting tool. It applies to new transmission-level interconnection agreements entered on or after January 1, 2027, and also requires compliance with construction labor standards.

Practical Significance: These laws contemplate substantial upfront and long-term financial commitments to secure power, along with penalties tied to nonperformance or early exit, factors that bear directly on project feasibility, underwriting and financing. Two important points: First, the utilities' forthcoming interconnection maps can inform siting toward locations where power is cheaper and faster to obtain, and second, because the detailed tariffs are still being written at the CPUC (in proceedings that overlap these laws), this will need to be tracked closely as the exact terms continue to firm up over the next year.

SB 1168 (Sen. Jerry McNerney) – A Study That Will Shape Future Rate Design

Background: Data center energy use and demand are growing rapidly at the same time that energy rates in California are rising due to wildfire costs, extreme heat and the clean-energy transition. The goal of SB 1168 is to require the CPUC study of transmission, distribution procurement costs related to data center growth to aid the establishment of tariff rates.

What SB 1168 Requires: SB 1168 directs the CPUC to assess how to structure data center rates so that these facilities pay a reasonable share of transmission and distribution and power-procurement costs and cost pressure on residential customers (including low-income ratepayers) is eased. Unlike AB 2383 and SB 886, SB 1168 does not itself set tariffs, but is a mandatory study that will inform future rate decisions.

Practical Significance: There is no immediate compliance step, but the law signals the direction of travel: continued CPUC focus on making data centers bear their own grid costs. Decisions coming out of this assessment should be anticipated to affect data center rates over time and closely monitored.

Key Dates

• January 1, 2027: Most of the package takes effect, including CEQA review and the categorical-exemption prohibition (SB 887), AB 2469 permit conditions (other than the water scarcity plan) and AB 1577 reporting, as well as AB 2619 licensing disclosures and SB 1168's rate-structure directive (no fixed deadline). SB 886's transmission-interconnection rules apply to new agreements entered on or after this date.
• January 1, 2028: Water scarcity plan requirement begins (AB 2469), CPUC data center tariffs due (SB 886) and community choice aggregators and electric service providers must adopt their generation tariffs (AB 2383).
• 2029: CEC begins including data center trends in its statewide energy planning report (AB 1577).

Conclusions

Together, California's new data center rules create new challenges and a few new opportunities. The laws can be best addressed through advanced planning and sophisticated use of the state's land use and environmental statues, especially regarding CEQA compliance and data center expansion based on the more efficient use of water and electric power resources.

This advisory is a general overview of significant new laws and does not address how they apply to any specific site, project or transaction. Many of the detailed requirements, particularly the CEQA scope questions under SB 887 and utility tariff terms under AB 2383 and SB 886, will be shaped by agency rulemaking over the next one to two years. Holland & Knight would be glad to discuss how these laws apply to a particular matter and help develop the permitting, water and interconnection strategy around it. If you have any questions, please contact the authors.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.