California Sets $15 Million Threshold for Data Center Review

California lawmakers have passed a series of bills that will reshape how data centers operate in the state beginning January 1, 2027. The new regulations require environmental reviews for all facilities and mandate that operators pay specific costs for electrical infrastructure.

The legislative package includes seven bills signed by Governor Gavin Newsom on September 21, 2026. The governor described the legislation as the most comprehensive data center laws in the nation. None of the bills impose a moratorium on new construction. Instead, they require thorough environmental reviews that focus on building sufficient electrical and water infrastructure.

SB887 serves as the centerpiece of the new rules. It requires environmental review under the California Environmental Quality Act for every data center project in the state. The bill eliminates categorical exemptions for this use, except for publicly owned facilities, higher-education research centers, and certain utility uses. Local communities will gain a voice through a mandatory discretionary review process, even in areas where zoning allows data centers by right.

The legislation creates specific tariffs to ensure data centers cover their share of electrical grid costs. SB866 directs the California Public Utilities Commission to establish new tariffs by January 1, 2028. These tariffs will require operators to pay for electrical service infrastructure, interconnection, transmission, distribution, and generation costs. The bill also imposes an early termination fee if a contract is ended within the first ten years.

Additional bills address water usage and wildfire risks. AB2383 requires data centers to pay tariffs for incremental generation costs, wildfire mitigation, and electrification programs. SB1168 directs the commission to assess rate structures to ensure data centers pay a reasonable share of transmission and distribution costs. This measure aims to alleviate cost pressures on residential ratepayers.

Disclosure requirements are also part of the new framework. AB1577 mandates that operators provide information on energy consumption, electricity generation, and sound levels during the permitting stage. Annual reports to the California Energy Commission will include power and fuel usage, cooling system data, noise levels, and renewable energy use. AB2619 requires applicants to disclose water sources, use, and volume before obtaining a business license.

For developers and investors, the new laws mean longer entitlement timelines and higher costs. Projects in the pipeline must assess water and power availability during site selection. Owners leasing or selling land to data center users should review deal terms to allocate these new risks. The laws take effect on January 1, 2027, giving stakeholders a short window to prepare.