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The company now expects to invest approximately $11.4 billion in 2027, down from its previous capital plan of about $13.4 billion. The revised plan would allow PG&E to borrow approximately $2 billion less in 2027, reducing financing costs that could otherwise be recovered from customers.

PG&E said it will continue to fund critical safety programs and comply with its Wildfire Mitigation Plan, safety-certification requirements and other regulatory obligations. The reductions could delay some electrical connections for new housing and renewable-energy projects, PG&E CEO Patti Poppe said, according to Reuters.

Wildfire legislation dies without a vote

The announcement followed the collapse of SB 492, a wildfire measure negotiated by Gov. Gavin Newsom and legislative leaders during the closing days of the session.

Newsom had sought broader structural changes intended to stabilize California’s Wildfire Fund, contain electricity rates, and reduce the risk that another catastrophic fire could force an investor-owned utility into bankruptcy.

The compromise would have accelerated compensation for wildfire victims, restricted investments in insurance claims, limited executive bonuses under certain circumstances, and created a statewide wildfire strategy. It did not include the more substantial changes to utility liability that Newsom and the utilities had sought.

Assembly leaders declined to bring the measure to a vote before the session ended. Newsom responded that the proposal did not address the system’s underlying structural problems and called on lawmakers to pursue more comprehensive reform.

PG&E strategic review

PG&E’s board created a committee of four independent directors to examine “the full range of regulatory, financial, operational and strategic alternatives” available to the company.

Poppe said California’s wildfire-liability framework “continues to create financing risks that drive higher costs, affect customer affordability, and limit investment in the energy system.”

Lower financing costs but slower investment

The reduction gives California’s wildfire-liability debate a direct infrastructure consequence. Investor-owned utilities must raise substantial amounts of capital to finance wildfire mitigation, transmission expansion, renewable-energy interconnections, electrification and service for new homes and growing electricity demand.

Higher perceived wildfire risk can increase the cost of utility debt and equity. Because regulated utilities generally seek to recover authorized financing costs through customer rates, those costs can contribute to higher electricity bills.

PG&E said deferring investment will reduce its immediate borrowing needs and benefit customers through lower financing costs. The corresponding tradeoff is that some grid projects and customer connections could take longer.

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SB 1168 would require the California Public Utilities Commission (CPUC) to assess rate structures that ensure data centers pay a reasonable share of associated transmission and distribution costs, regardless of where they connect to the electric grid.

The CPUC would also examine ways to ensure data centers pay a proportionate share of the load increases and electricity procurement needed to serve them. Any resulting rate structures would have to remain consistent with California’s integrated resource-planning requirements and seek to alleviate cost pressures on residential customers, including participants in the CARE and Family Electric Rate Assistance programs.

The bill cites rapid growth in expected data-center electricity demand. According to its legislative findings, the California Independent System Operator expects data-center energy use in the state to grow by 2.3 gigawatts by 2030. PG&E alone had approximately 2,300 megawatts of applications for data-center capacity in 2024.

The legislation addresses concerns that utilities could invest heavily in grid infrastructure to serve proposed data centers whose projected electricity demand does not ultimately materialize. Without appropriate rate structures, some of those costs could be shifted to existing customers.

The Senate voted 38–0 on August 30 to concur in Assembly amendments. The Assembly passed the bill 78–0 on August 28, 2026. The enrolled bill now goes to Governor Gavin Newsom for consideration.

SB 1168 comes alongside AB 1577, which would require large data centers to report electricity consumption and other operating information to the California Energy Commission and provide projected energy-demand information when applying for certain local permits.

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The bill would require the California Public Utilities Commission (CPUC) to enhance existing pathways for aggregated distributed energy resources to qualify as capacity under California’s Resource Adequacy program. The CPUC would coordinate with the California Energy Commission (CEC) and the California Independent System Operator (CAISO) and complete the work by June 30, 2028.

The bill would permit utilities, electric service providers, and community choice aggregators to use aggregated customer resources to satisfy resource-adequacy obligations and other CPUC procurement requirements.

The CPUC would also have to develop rules allowing qualifying capacity to reflect energy exported beyond a customer’s utility meter, not merely reductions in the customer’s own electricity consumption.

California’s Resource Adequacy program determines which resources utilities and community choice aggregators can count on to keep the grid reliable. Allowing aggregated distributed resources to compete for capacity payments could turn thousands of customer batteries and other devices into formal grid resources and reduce reliance on new gas plants or other capacity procured primarily for peak demand.

The legislation could move virtual power plants from largely incentive-based demand-response programs toward a more permanent role in California’s reliability market.

The Senate voted 40–0 on August 27 to approve Assembly amendments. The Assembly passed the bill on August 25, 2026. The bill now goes to Governor Gavin Newsom for consideration.

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The bill is intended to give state and local officials more information for assessing the effects of data-center development as artificial intelligence and cloud computing lead to projections of rapidly increasing electricity demand.

AB 1577 would require owners or operators of data centers with at least 10 megawatts of electrical capacity to report specified operating information to the CEC at least annually. The data generally would have to be disaggregated by month and would include maximum electrical load, total energy consumption, power usage effectiveness, participation in demand-flexibility programs, onsite electricity generation and fuel consumed by onsite generators or other fuel-based energy systems.

Notably, the final version of the bill does not require reporting of water consumption or water usage effectiveness.

The CEC would publish the reported information annually in anonymized, aggregated form. Beginning with its 2029 Integrated Energy Policy Report, the CEC would also assess data-center electricity-load trends, including projected demand, potential net peak loads and possible measures to limit effects on grid capacity, reliability and greenhouse-gas emissions.

The legislation would impose additional disclosure requirements during the development process. When seeking a discretionary permit, entitlement, or land-use authorization, a data-center owner or operator would have to give the applicable local agency estimates of the facility’s annual electricity consumption, onsite electricity generation and operational sound levels. Local agencies could then use the information for land-use and infrastructure planning, energy-supply assessments and environmental reviews.

The Senate passed AB 1577 by a 29–10 vote on August 26. The Assembly concurred in Senate amendments by a 58–11 vote on August 27. The bill now goes to Governor Gavin Newsom for consideration.

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In its report Data Centers and California Electricity Policy, the Little Hoover Commission evaluates how the state should manage rising electricity demand from data centers through updated rate design, financing mechanisms, and regulatory tools. Data centers—particularly those supporting artificial intelligence—are identified as a major new source of load growth and a potential driver of grid investment and modernization.

The report comes as California continues to face some of the highest retail electricity rates in the United States, with prices rising faster than inflation. The addition of large-load customers such as data centers has raised concerns among policymakers about cost allocation, system reliability, and long-term infrastructure planning, and lawmakers have introduced legislation to address these issues.

Ratepayer Protection and Cost Allocation

At the center of the Commission’s recommendations is a directive to ensure that new data center development does not shift costs to existing customers. The report calls for the creation of “very-large-load” tariffs designed to fully recover infrastructure and system costs from data center operators.

These tariffs would incorporate mechanisms such as upfront financial commitments, minimum demand requirements, and exit penalties to reduce the risk of stranded assets. The framework also recommends expanding regulator access to facility-level electricity usage data to improve planning and ensure that cost responsibility is appropriately assigned.

Grid Planning and Siting

To limit unnecessary infrastructure expansion, the report recommends prioritizing the use of existing grid capacity through targeted transmission upgrades and strategic siting of data centers in areas with available capacity. Load-shifting strategies and flexible demand are identified as tools to reduce peak system strain and improve overall grid efficiency.

The Commission also recommends accelerating interconnection timelines for large-load customers while maintaining rigorous review standards to ensure reliability and cost control.

Aligning with Climate Goals

The report emphasizes that new data center load must be integrated in a manner consistent with California’s statutory climate targets. Recommendations include requiring data centers to maintain a minimum level of clean backup power and reducing reliance on diesel generators that can increase local air pollution.

It also calls for statewide standards to limit environmental impacts on nearby communities and to ensure consistent oversight across investor-owned utilities, publicly owned utilities, and community choice aggregators.

Toward a Statewide Framework

The Commission outlines 15 recommendations focused on three areas: ensuring full cost recovery from data centers through tariffs and cost-allocation rules; improving grid planning and siting to maximize existing capacity; and aligning new load with California’s clean energy and environmental standards.

The report also proposes the creation of a public-private research partnership—tentatively named the California Partnership for Advanced Research (CALPAR)—to support the development of technologies that improve the efficiency and environmental performance of AI-driven data centers.

The recommendations position data centers as a test of whether California can accommodate rapid electricity demand growth tied to AI and digital infrastructure without increasing costs for ratepayers or undermining its clean energy transition.

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The Trump administration contends that these cities cannot adopt local rules that effectively eliminate the use of natural gas-powered appliances by banning the infrastructure that supports them. In its complaint, the Department of Justice describes Petaluma and Morgan Hill’s restrictions as not only unlawful but also burdensome to residents, arguing they “deny consumers reliable, resilient, and affordable energy” and undermine broader national energy interests.

The natural gas bans follow a similar effort in Berkeley, which imposed the country’s first ban on natural gas in new construction in 2019 before repealing it in 2024. The U.S. Court of Appeals for the Ninth Circuit overturned the ordinance in 2023. The majority opinion of the full panel of judges held that that the EPCA “expressly preempts State and local regulations concerning the energy use of many natural gas appliances, including those used in household and restaurant kitchens.” The Biden administration supported Berkeley’s ordinance in court before the Ninth Circuit.

The reach of the decision is unclear, as the EPCA could allow local governments to discourage the use of natural gas through air quality standards or energy efficiency–based building standards rather than direct bans on federally regulated appliances.

The case is now a central pillar of the federal government’s argument against similar ordinances across California. Petaluma and Morgan Hill both maintain that their gas bans are no longer actively enforced and that they are in compliance with the Ninth Circuit’s Berkeley ruling. The U.S. government’s efforts to block them is likely a way to prevent them from being revived or influencing future building policy.

Stopping State “Overreach”

Municipal gas bans have proliferated since 2019 as part of a broader strategy to reduce emissions from buildings — a sector that accounts for a significant share of greenhouse gases. California has been at the forefront of these efforts, and more than 60 U.S. cities have adopted similar codes aimed at phasing out fossil fuel use in new construction. At the state level, in 2022, the California Air Resources Board (CARB) adopted a plan to ban the sale of gas new furnaces and water heaters by 2030.

Supporters argue these rules accelerate electrification, improve public health, and help meet state and local climate goals. Opponents maintain that fragmented local policies create inconsistency, drive up costs, and exceed the legal authority of cities when federal law covers the same territory.

The challenge to these ordinances is part of President Donald Trump’s policy, outlined in an April 2025 executive order, to stop the “overreach” from “burdensome and ideologically motivated ‘climate change’ or energy policies that threaten American energy dominance and our economic and national security.” Trump’s January 2025 executive order on “Unleashing American Energy” states it is U.S. policy to “safeguard the American people’s freedom to choose from a variety of goods and appliances, including but not limited to lightbulbs, dishwashers, washing machines, gas stoves, water heaters, toilets, and shower heads…” Trump reportedly also considered an executive order to protect gas stoves.

Prior to the April executive order, California’s legislative Republican caucus asked the Department of Energy in February to “engage legally with any California jurisdiction violating EPCA in order to enforce the federal preemption of any state or local gas bans.”

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The report finds that residential and commercial electricity rates in California are roughly double the national average, while industrial rates paid by manufacturers, agricultural producers, and construction firms are more than two-and-a-half times higher than the U.S. average. The analysis attributes the disparity to a combination of wildfire-related costs, rate design that shifts expenses onto a shrinking customer base, utility profit incentives tied to capital investment, and declining electricity consumption that spreads fixed costs across fewer kilowatt-hours.

Those factors have produced what the report characterizes as an electricity affordability crisis. One in five California households is behind on energy bills, according to the analysis, while electricity-intensive industries are increasingly cautious about operating or expanding in the state. The report concludes that affordability has become the top energy-related concern for residents, raising risks for long-term political support of California’s climate and clean energy policies.

The report frames its recommendations as an effort to slow rate growth while preserving emissions-reduction commitments and equity protections. It focuses on changes to rate design, utility regulation, and targeted bill relief.

Rate Redesign

One of the central recommendations is to increase California’s newly adopted income-graduated fixed charge on electricity bills. The report argues that higher fixed charges would allow utilities to reduce per-kilowatt-hour rates, ease bill volatility in hot climate zones with high cooling demand, and distribute system costs more evenly across income groups. It also calls on the Legislature to require a structured feasibility study to evaluate shifting certain policy and system costs away from ratepayer bills and onto alternative funding sources, including the state General Fund, the Greenhouse Gas Reduction Fund, or available federal grants.

Regulatory Reform

On regulation, the report calls for changes to improve cost discipline and oversight. It recommends mandating timely completion of utility General Rate Cases before test years begin and integrating cost-intensive proceedings—such as wildfire mitigation plans and cost-of-capital reviews—directly into those cases to reduce duplicative filings and delays. The report also proposes assigning the State Treasurer’s Office a formal role in providing independent analysis during cost-of-capital proceedings, with the goal of ensuring utility profit levels better reflect current financial conditions. In addition, it urges an evaluation of whether the California Public Utilities Commission has sufficient staffing and expertise to provide rigorous oversight of utility spending.

Equity and Access

The report also outlines several equity-focused measures. It recommends redirecting California Climate Credits toward low-income households and customers in hot climate zones during peak summer months, when electricity bills are highest. It further calls for allowing rooftop solar customers to recover their investments before reducing Net Energy Metering benefits, while placing clearer limits on program duration and cost impacts to address long-standing concerns about cost shifts. Additional recommendations include expanding bill assistance for households just above existing CARE and FERA eligibility thresholds and simplifying access to clean energy innovation grants to reduce barriers for academic and private-sector research.

The report situates its recommendations within the context of Governor Gavin Newsom’s 2024 executive order directing state agencies to identify cost-saving opportunities across the electricity system. It concludes that slowing electricity rate growth is essential if California is to maintain its climate leadership while protecting households and businesses from rising energy costs.

Specific Recommendations

1. Increase the income-graduated fixed charge to reduce rates and spread costs more equitably.

2. Require a feasibility study and criteria-based framework for shifting some costs to non-ratepayer funding sources.

3. Mandate timely completion of General Rate Cases before the test year begins.

4. Task the State Treasurer’s Office with providing independent analysis for Cost of Capital proceedings.

5. Integrate cost-related proceedings (e.g., wildfire, cost of capital) into the General Rate Case and streamline filings.

6. Direct the State Auditor to evaluate California Public Utilities Commission staffing levels and expertise.

7. Balance fairness for home solar investors with the need to reduce the Net Energy Metering cost shift by capping program duration and benefits.

8. Redirect California Climate Credits to CARE/FERA and hot climate zone customers during summer months.

9. Expand support for low-middle income households above the CARE threshold.

10. Simplify and accelerate clean energy grant processes.