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Will AI Data Centers Raise SDG&E Bills? What California's New Law Means for Ratepayers

••4 min read

Artificial intelligence needs electricity. As data centers grow, so does the need for substations, transmission lines, and other grid upgrades. For San Diego Gas & Electric (SDG&E) customers, the practical question is simple: who pays for that infrastructure?

California took a significant step on September 21, 2026, when Governor Gavin Newsom signed Senate Bill 886 and several related data-center bills. The new law directs the California Public Utilities Commission (CPUC) to design rate and connection rules intended to keep data-center costs from shifting to households and other businesses. It does not freeze SDG&E rates or guarantee that data centers will never affect an electric bill.

Why Data-Center Growth Can Affect Other Customers

A large data center can require major grid upgrades long before it reaches full operation. If a utility builds around a projected load and the project is canceled, uses less power than expected, or shuts down early, the investment can become a "stranded cost." Without sufficient protections, some of that cost can be recovered from other customers. California's Public Advocates Office has also warned that major transmission-network upgrades are commonly spread across customers in the broader California grid.

What SB 886 Requires

SB 886 directs the CPUC to establish new tariffs or update existing electric rules by January 1, 2028. In doing so, the CPUC must evaluate the effect on other customers and ensure its rules prevent stranded costs and cost shifts.

For a data center entering a new agreement for transmission-level retail electric service on or after January 1, 2027, the law calls for a tariff that:

  • Assigns responsibility for transmission upgrades and usage to the data-center customer under a CPUC-developed method, including certain shared network upgrades to the extent federal law permits
  • Limits refunds of the customer's upfront connection contributions to amounts supported by actual revenue as its electricity use develops
  • Imposes an early termination fee if the customer leaves within ten years or fails to reach an adequate level of use
  • Requires disclosure when the same project has applied to connect in other utility territories or jurisdictions

The law also allows the utility to seek CPUC approval of a qualifying individual contract during the period after January 1, 2027, and before the new tariff is approved. These are statewide requirements; they are not evidence of a separate, universal SDG&E guarantee already in effect for every data center.

Does This Mean SDG&E Rates Will Stay Flat?

No. The new rules are intended to make data centers pay the costs they cause. The CPUC still has to develop and apply the tariff, and federal rules affect how some shared transmission costs are recovered. California's Public Advocates Office cautions that even safeguards such as termination fees may not eliminate every risk of costs appearing on other customers' bills.

There can be a benefit, too: a large customer that uses the power it forecast and pays rates that fully cover its costs can contribute revenue to the grid. The outcome depends on the project, the upgrades needed, the contract, and the final tariff.

What San Diego Customers Should Watch

The key milestone is the CPUC's implementation of SB 886, including the tariff's treatment of upfront payments, shared upgrades, projected demand, and early exits. If a major data-center project is proposed in the SDG&E territory, the useful question is not just how much power it requests, but how its full costs will be assigned and secured.

For commercial property owners, this is also a reminder to review energy costs using the actual utility tariff, peak demand, and long-term load plans. Solar, storage, and load management can be worth evaluating for a specific site, but none should be sold as a blanket hedge against future utility rates.

Solar Power San Diego helps property owners evaluate solar, storage, and energy decisions with an independent look at costs, tariffs, and project fit. Contact us to discuss your property.

Sources

  • California SB 886, chaptered text
  • Governor's September 21 announcement
  • California Public Advocates Office analysis