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A city that spent the past two years courting the artificial intelligence industry is now watching a growing share of its own residents question what that courtship actually cost them. San Jose, California’s third largest city, struck a deal with utility PG&E Corporation (NYSE: PCG) last year to speed up power delivery to large energy users such as data centers, betting that new tax revenue and jobs would outweigh the tradeoffs. City officials estimate each new facility could bring in between $3 million and $6 million a year for services like police, fire protection, libraries and parks.
That math has not convinced everyone. A grassroots coalition called I Love San Jose has started organizing residents to demand stricter public review of proposed data centers, more transparency around how much electricity and water each project will use, and independent studies of health and environmental effects before any new approvals move forward. Their concerns center on three issues in particular: who ultimately absorbs the higher electricity costs that come with powering massive server farms, how much of the region’s water supply gets diverted to cooling systems, and what diesel backup generators at these facilities are doing to local air quality. On that last point, a coalition led by the Center for Biological Diversity petitioned the Bay Area Air Quality Management District in April to tighten oversight of those generators, arguing existing rules were written before the current AI buildout began.
San Jose Mayor Matt Mahan has tried to walk a middle path, arguing that the answer is not to stop data center development but to make sure it happens responsibly, while acknowledging that residents’ questions about energy costs, water use and quality of life are fair ones to ask. PG&E, for its part, has argued that adding large new customers can actually help spread the utility’s fixed grid costs across a wider base and ease pressure on other ratepayers’ bills.
The local debate has since made its way to Sacramento. California lawmakers recently gave final approval, in both the state Senate and Assembly, to a package of bills aimed at making sure large electricity users like data centers pay their fair share of grid related costs, along with new requirements for disclosing energy and water consumption. Governor Gavin Newsom now has until the end of the month to sign or veto the legislation. The Data Center Coalition, an industry trade group whose members include Alphabet (NASDAQ: GOOGL) and Meta (NASDAQ: META), has said it supports responsible growth but believes the bills unfairly single out data centers compared with other large industrial power users, warning that the rules could push investment and jobs to other states.
None of the companies named directly in the Reuters reporting are small caps, but the outcome of this fight still matters well beyond Silicon Valley’s largest players. Any company whose business depends on AI infrastructure, power access or data center construction now has to factor in a genuine regulatory variable that did not exist a year ago. Vertical Data Inc. (OTCQB: VDTA), a Las Vegas based company that provides AI computing infrastructure, GPU financing and edge data center services, is one example of a smaller, publicly traded name operating in this exact space. Whether California’s fair share cost rules become law, and whether other states follow with similar measures, could shape how quickly and cheaply smaller infrastructure providers can bring new capacity online.
What happens in Sacramento over the next two weeks will not settle the broader tension between AI’s enormous appetite for power and the communities being asked to host it. But Newsom’s decision, and whether San Jose style organizing spreads to other cities weighing their own data center proposals, will offer an early signal of how much friction this industry should expect as it keeps building.
