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SB 1168

Data centers: rate structures.

2025-2026 Regular Session Introduced by Jerry McNerney and 1 co-sponsor

SB 1168 would impose new surcharges on gas and electricity used by data centers, fund them, and require rate design to protect residential customers while funding wildfire-related

From committee: Do pass and re-refer to Com. on APPR. with recommendation: To consent calendar. (Ayes 18. Noes 0.) (June 24). Re-referred to Com. on APPR.
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Bill Summary · SB 1168

Summary of SB 1168 (2025-2026, California)

Purpose and intent

SB 1168, introduced by Senator McNerney (Coauthor: Senator Pérez), aims to reform rate structures for data centers by imposing new surcharges on natural gas and electricity used to power data centers, and by directing the Energy Commission and public utilities to develop rate structures that ensure data centers pay a fair share of system costs while protecting residential ratepayers. The bill would also create a dedicated fund to manage revenues from these surcharges and would require associated administration and potential exemptions. The measure is driven by concerns that data centers’ rapidly growing energy use affects overall utility costs and reliability, and seeks to stabilize rates for non-data-center customers (particularly low-income and residential customers).

Key provisions and changes

  • New surcharges and implementation timeline

    • Effective: January 1, 2027.
    • Surcharges would apply to:
    • Natural gas consumed by a data center (or by a person who uses gas to produce electricity primarily for a data center).
    • Electricity consumed by a data center purchased from an electric utility (including both investor-owned utilities and local publicly owned electric utilities).
    • The State Energy Resources Conservation and Development Commission (Energy Commission) must set the surcharge rates at a public meeting each November for the upcoming calendar year.
    • Surcharges apply to entities meeting criteria such as purchasing gas or electricity in a month beginning January 1, 2027, that is wholly or partially consumed by a data center.
    • Gas corporations and electric utilities would collect the surcharge from data centers, subject to specified exceptions.
    • Data centers may apply for exemptions from the surcharge.

  • Rate design and guidance to utilities

    • The bill requires the Commission to assess and develop rate structures to:
    • Ensure data centers pay a reasonable share of transmission and distribution costs, regardless of interconnection level.
    • Ensure data centers contribute to load growth and procurements needed to reliably serve their loads using nonemitting resources.
    • Structure rates to alleviate cost pressures on residential ratepayers, including programs like California Alternate Rates for Energy (CARE) and Family Electric Rate Assistance (FERA).

  • Revenue use and administration

    • Revenues, interest, and penalties from surcharges would be deposited into the new Data Center Excess Energy Usage Surcharge Fund in the State Treasury.
    • Moneys in the fund would be continuously appropriated as follows:
    • To the Energy Commission for apportionment to local publicly owned electric utilities (LPOEUs) for wildfire-related costs included in rates.
    • To electrical corporations (via the PUC) for apportionment to cover wildfire-related costs included in rates.
    • The California Department of Tax and Fee Administration would administer the taxes under the Fee Collection Procedures Law.

  • Exemptions and exemptions process

    • Data centers or related entities may apply to gas corporations or electric utilities for exemptions from the surcharge, subject to specified criteria.

  • Policy and planning requirements

    • The Commission must assess opportunities for rate structures to:
    • Ensure data centers pay a reasonable share of transmission and distribution costs.
    • Identify mechanisms for data centers’ share of load growth and related nonemitting procurements.
    • Alleviate cost pressures on residential customers.

  • Legal and fiscal notes

    • The bill expands application of the Fee Collection Procedures Law, creating a state-mandated local program.
    • Some provisions involve the Public Utilities Act and enforcement actions under the Energy Resources Surcharge Law (a crime to violate).
    • The measure includes a two-thirds vote requirement for passage due to tax-like elements.
    • Reimbursements to local agencies for mandates are addressed in the standard manner, with stated provisions for when reimbursements are not required.

Affected entities and scope

  • Data centers and their operators that consume natural gas and electricity in California.
  • Gas corporations and electric utilities (including investor-owned utilities and local publicly owned electric utilities) that would collect surcharges.
  • Energy Commission (for rate design and cost allocation related to data center impacts).
  • Public Utilities Commission (PUC) and electrical corporations (through rate adjustments and allocations to wildfire-related costs).
  • Residential customers, particularly those enrolled in CARE and FERA, who could be affected indirectly by rate structure changes intended to shield them from rising costs caused by data center load.

Procedural and timeline notes

  • Introduction: February 18, 2026.
  • Subsequent committee activity in 2026 shows a path through multiple committees, with amendments, and action history indicating hearings and referrals (REV. & TAX, E., U & C, APPR).
  • Effective implementation targeted for January 1, 2027, for the surcharges to begin.
  • The bill requires annual public determinations of surcharge rates each November for the following year.

Practical impact

  • Data centers would face new energy cost surcharges for gas and electricity used to power their operations.
  • Surcharge rates and any exemptions would be determined and adjusted annually by the Energy Commission.
  • The rate design would seek to ensure data centers contribute proportionally to system costs and load growth while buffering residential ratepayers from increased costs.
  • Net effect on overall California energy prices would depend on surcharge rates, exemptions granted, and how the rate structures are implemented in practice.

Note: This summary reflects the bill text and Fiscal/Digest language as provided. For a complete understanding, including potential amendments and final legislative status, refer to the official bill texts and legislative analyses.

Compiled from official sources — confirm details with the bill’s official record.

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