The California Senate passed Senate Bill 886 by 28 votes to 10, the Assembly passed it by 49 to 7, and the bill now sits on Governor Gavin Newsom’s desk. Senator Steve Padilla’s office Newsom has until the end of September to sign it or veto it, so nothing in it is law today. KCRA 3 Senator Steve Padilla, who wrote the bill, says his package would make AI data centers pay every transmission upgrade cost needed to connect them to the grid. They would also cover the full cost of the electricity supply needed to serve them. Senator Steve Padilla’s office Transmission means the high voltage lines and substations that carry power long distances. Today the cost of building more of it is spread across everyone who uses the grid. That means ordinary households pay part of the bill when a very large new customer arrives, according to Matthew Freedman, a senior staff attorney at The Utility Reform Network. CalMatters
The commission would have to write two new rulebooks
The bill orders the California Public Utilities Commission, the state agency that decides what electric utilities may charge, to create two separate rulebooks by July 1, 2027. One covers connecting a very large customer to the grid. The other covers delivering and selling power to that customer, according to the official summary of the version dated July 2, 2026. Digital Democracy bill page, SB 886 digest In utility law each of those rulebooks is a tariff. A tariff is a written schedule of prices and conditions that the commission approves, and the utility must then apply it to everyone it covers. The bill’s own name for the customers covered here is participating customers. Before approving either tariff the commission has to weigh the risks and the benefits for every other customer on the system. It also has to make sure the new arrangement does not shift costs onto those customers or leave costs behind that nobody has agreed to pay.
Pattern Nexus, reading the text as amended in the Assembly on August 28, 2026, reports that the commission would instead have until January 1, 2028 to write the new tariffs or update existing rules. Pattern Nexus The same reading describes one route to service in the meantime, a one off request to the commission. It applies to a large AI data center that wants service after January 1, 2027 but before the tariff is approved.
An applicant would pay for every upgrade its connection triggers
The connection rulebook would assign the cost of all transmission upgrades triggered by a new facility’s interconnection to the customer that triggered them. Digital Democracy bill page, SB 886 digest Interconnection is the physical work of hooking a new facility up to the grid. One very large new customer can trigger significant transmission upgrades that are costly and take time. The same rulebook would make an applicant say whether it has filed an application for the same AI data center in another utility’s service territory or in another jurisdiction. The applicant would also have to list every one of those filings. It would also require a fee if the customer ends the arrangement early, in specified circumstances.
A developer that is holding places in line with three different utilities while it decides where to build would have to say so in each filing. SB 886 bill summary Once those parallel filings are disclosed, the utility receiving the application can see whether the same AI data center has applied in other service territories.
The supply contract gets paid for before the power flows
A participating customer would have to pay in advance for a power contract running at least 10 years, bought on its behalf by whichever company supplies its electricity. Digital Democracy bill page, SB 886 digest Each large utility would also have to publish maps of the places where a very large customer can connect without setting off major, costly and slow transmission work, and keep those maps current.
Pattern Nexus reports that the amended bill would limit refunds to the load that actually shows up. The bill would also charge the early termination fee if a facility leaves the system within 10 years or fails to ramp its load up enough. Pattern Nexus Load here just means the amount of power the customer draws. A lender would have to underwrite a ten year exit penalty before the first server runs, knowing the refund is capped if the promised draw never appears.
What SB 886 would change for a very large electric customer seeking interconnection
| Dimension | Before | After |
|---|---|---|
| Transmission upgrade costs | Cost of expanding transmission spread across all grid users, per The Utility Reform Network | All upgrades triggered by the new interconnection assigned to that participating customer |
| Generation to serve the load | No statutory prefunding requirement tied to a new large customer | Customer prefunds a contract of at least 10 years through the company that serves its load |
| Applications filed elsewhere | No statutory duty to disclose parallel applications | Must disclose each application for the same AI data center in other territories or jurisdictions |
| Leaving early or not ramping up | No statutory early termination fee | Early termination fee required under specified circumstances |
| Finding a low upgrade site | No requirement that utilities publish interconnection capacity maps | Each utility must publish and update maps of locations that need no major upgrades |
| Legal footing | CPUC general authority to fix just and reasonable rates | Statutory mandate to build separate tariffs, bill awaits the Governor’s signature |
The 25 megawatt line sits in the companion bill
The companion bill, AB 2383, would stop the commission from setting the cutoff for the supply tariff any higher than 25 megawatts of peak demand. It would also exempt certain public, public safety, national security and utility owned facilities. Pattern Nexus That same bill would also require local government run power agencies and independent power sellers to adopt their own supply rules for AI data centers by January 1, 2028. Pattern Nexus A megawatt is a unit of electric power, and a large AI data center is measured in hundreds of them. So a 25 megawatt floor would catch essentially every project of this kind. https://patternnexus.com/californias-ai-data-center-fight-moves-to-the-utility-bill
POLITICO reported that Assemblymember Rick Zbur and Padilla had written bills similar enough that passing both would have been difficult. The two filed amendments late on Friday night, and the bills now move forward as a matching pair. POLITICO California Currents
A 330 megawatt project in Imperial County
In Imperial County, Imperial Valley Computer Manufacturing LLC has proposed a $10 billion, 950,000 square foot facility on about 75 acres. It would consume 330 megawatts, with its own substation and a large battery system on site. KPBS reported the power it needs is nearly double all the electricity Imperial County used in 2024. North County Pipeline Padilla’s office says the largest proposed AI data center in California sits in his district, which takes in the Imperial Valley and San Diego. Senator Steve Padilla’s office
Under SB 886 that project would pay for whatever transmission work its connection sets off, rather than spreading the cost across Imperial County households. SB 886 bill digest Someone would have to prefund a contract of at least 10 years for the electricity supply needed to serve the project. SB 886 bill summary If the developer has also applied to connect the same AI data center somewhere else, it would have to disclose each of those applications. SB 886 bill summary And if the facility left within 10 years or never ramped up to the load it promised, it would owe an early termination fee. SB 886 interconnection provisions
Will Newsom sign it?
A year ago four bills aimed at AI data centers died or were watered down. The only one Newsom signed was cut back to a requirement that state energy regulators publish an environmental study of AI data centers’ electricity demand. He vetoed a water usage disclosure bill because he was concerned regulation could slow the growth of AI. CalMatters In the first half of 2026 Amazon paid more than $500,000 to lobby on 33 pieces of legislation. The Data Center Coalition spent roughly $60,000 opposing nearly every bill that would regulate AI data centers. CalMatters At a June hearing on SB 886, Assemblymember Pilar Schiavo said a handful of companies stand to make trillions of dollars from AI. She said those companies should pay for the utility upgrades that come with it. Los Angeles Times
The power contract would come before the land deal
If SB 886 becomes law, an AI data center customer in California would have to prefund a power contract of at least 10 years. The prepaid supply deal has to be financed in advance, and the party on the other side is the load serving entity. So the credit and collateral questions get answered by someone the developer may never have dealt with. SB 886 bill digest
I found no amount for the early termination fee in the bill, and no figure for how much collateral or prepayment a customer must post. Those numbers, along with the method for splitting upgrade costs and the way a refund is figured when the promised load never appears, would be decided in a commission proceeding. California’s AI Data Center Fight Moves to the Utility Bill A California project therefore needs money set aside for lawyers at the commission. It also needs a schedule that assumes no tariff exists until the bill’s July 1, 2027 deadline. Once each utility has to post the spots where a very large customer can connect without major transmission work, I expect those spots to get crowded fast. A site that is not on the map should get harder to finance. SB 886 bill summary
Tomorrow’s topic
PJM’s proposal to make large data center loads bring their own generation.