California Data Center Growth Puts Energy and Water Policy in the Spotlight

SACRAMENTO — California's rapid growth in data centers is emerging as an important state policy issue, with officials, utilities and communities weighing how new facilities should be planned, powered and supplied with water. The issue is gaining attention as demand for computing infrastructure expands while California continues to plan for long-term electricity reliability and responsible resource use.

Data centers are large facilities that house computer servers and networking equipment. They support a wide range of digital services, including cloud computing, online applications and artificial-intelligence systems. Their expansion has created a policy challenge because these facilities can require substantial amounts of electricity and, depending on their cooling systems, water.

The California Energy Commission says the state has more than 200 active data centers, making California one of the leading states nationally for data-center development. The commission estimates that data centers accounted for about 1,000 megawatts of peak electricity demand in early 2026, equivalent to roughly 2% of California Independent System Operator peak demand. That figure is projected to reach about 4,500 megawatts, or 9% of peak demand, by 2040.

Those projections are placing data centers more prominently in California's energy planning. The California Energy Commission does not generally approve data-center projects themselves, but it evaluates their potential effects on future electricity demand and has authority over certain energy infrastructure associated with large projects.

The policy question is not simply how much electricity new facilities will use. It also involves determining how new demand should be incorporated into the state's broader electricity system and how the costs associated with additional infrastructure should be allocated.

California's Little Hoover Commission examined the issue in a 2026 report on data centers and electricity policy. The commission's work considers potential approaches involving electricity rates, financing mechanisms and regulatory policies as the state responds to increased demand from new data centers.

Water is another part of the discussion. Many data centers generate considerable heat and use cooling systems to maintain operating temperatures. Depending on the technology and facility design, water consumption can become an important consideration for communities evaluating new developments.

The Little Hoover Commission has noted that data centers can place significant demands on local water supplies, while the University of California, Berkeley's Center for Law, Energy & the Environment has also examined the limited availability of detailed information about data-center water consumption in California.

That information gap has become an important part of the policy debate. Accurate estimates of water use can help local agencies evaluate whether proposed projects are compatible with existing water supplies and long-term planning.

California lawmakers have considered measures aimed at improving that information. Legislative proposals introduced in 2026 included requirements related to reporting data-center water use and assessing potential impacts on local water supplies. A California Department of Water Resources legislative update described proposals that would require additional information about actual or anticipated water consumption by data centers.

The state's policy discussion also extends to how new facilities can reduce their resource requirements. Research and policy analyses have examined options such as more efficient cooling systems, recycled or nonpotable water, improved facility design and strategic site selection. These approaches can affect both water consumption and electricity efficiency, making technology choices an important part of the planning process.

For California communities, the issue is increasingly local as well as statewide. A data center can require new electrical infrastructure, land, water services and other public resources. Decisions about individual projects may therefore involve cities, counties, utilities and state agencies operating under different responsibilities.

The California Energy Commission is continuing to incorporate data-center demand into its broader electricity forecasting work. Its 2026 Integrated Energy Policy Report process is intended to assess energy supply, demand, delivery and related issues and provide a framework for long-term state energy planning.

Recent state records also show that individual data-center proposals continue to generate public scrutiny. A California Energy Commission docket for a proposed data center in Inyokern included recent public comments addressing issues such as water, electricity demand, wildlife and cumulative impacts.

For California residents, the most important takeaway is that data-center development is becoming part of a broader conversation about infrastructure planning. The question is not simply whether the state should accommodate new computing facilities, but how projects can be evaluated using reliable information about electricity, water, infrastructure and community impacts.

The discussion is likely to remain relevant as California's technology sector expands and electricity demand changes. State forecasts, local permitting decisions and resource-management policies will help determine how new data centers fit into California's long-term plans.

For readers across the state, particularly in communities considering new development, the key issues to watch are straightforward: projected electricity demand, water requirements, infrastructure costs, resource efficiency and the availability of transparent information during the planning process. Those factors will play an increasingly important role in shaping how California manages the next phase of data-center growth.