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Energy costs associated with the proliferation of data centers should be paid for by the centers themselves, not shifted onto other ratepayers, California’s Little Hoover Commission recommends in a new report.
“The rapid growth of energy-hungry data centers presents both a serious challenge and a potential opportunity for California’s electricity system,” says the report, which includes 15 recommendations for ratepayer protection, smarter grid planning, and clean energy and community protection.
The commission, which is charged in statute with recommending reforms for improving state government to the Governor and Legislature, decided last fall to examine how the state can best respond to the challenges that data centers pose to California’s electrical grid.
In particular, commissioners decided to focus on how data center growth would affect the electricity rates paid by residential consumers.
“Our message is simple,” said Commission Chair Pedro Nava. “The costs that data centers impose on the electrical grid should be paid by the centers themselves, not by average California families already struggling with high utility bills.”
Among other recommendations, the report urges the state to create a special “tariff” – or rate category – to be paid by extremely large energy users like data centers.
The report recommends that the tariff include prepayment for infrastructure needed to serve the large users, a special rate structure that includes recovery of costs such as wildfire mitigation, and commitments to pay for a defined percentage of proposed power demand.
The report also urges expedited permitting decisions, continued commitment to clean energy goals, statewide oversight expectations for data centers served by municipally owned utilities, and disclosure to regulators of facility-level data about electricity use, along with other changes.
“Like the Legislature, our commission has long been interested in affordability,” said Commissioner David Beier, who served on the commission subcommittee that led the data centers study. “The growth of data centers is directly connected to those concerns. There’s a risk that data centers could create costs that must be borne by other consumers, and California must avoid that path.”
Commissioner José Atilio Hernández, who also served on the study subcommittee, emphasized that data center growth holds the potential to push down electricity rates for others.
“The basic cost of the electrical grid is shared by all ratepayers, and if those costs can be spread more widely – including to the developers of data centers – kilowatt-hour prices could be reduced for residential customers,” Hernández said. “But in order to ensure that prices fall, the state must inculcate necessary steps at regulatory and local municipal levels, and those are the things we’ve recognized in our recommendations.”
As part of its study, the commission held two public hearings on data center growth.
Commission staff interviewed stakeholders and reviewed state reports, independent research and other documents related to the impact of data centers.
The data centers report follows a separate report issued last October on how the state can best reduce electricity rates for residential consumers.
The Little Hoover Commission is a bipartisan, 13-member citizens and legislative panel charged with recommending improvements in state government.
