SB 1168 imposes new surcharges on natural gas and on electricity consumed by data centers (and on gas used to generate electricity primarily for data centers), effective January 1, 2027. The bill directs collection by public utility gas corporations and electric utilities, delegates tax administration to the California Department of Tax and Fee Administration (CDTFA), and deposits revenues into a newly created Data Center Excess Energy Usage Surcharge Fund for low‑income rate assistance.
The bill targets large or rapidly growing energy use tied to data center operations through facility‑size and year‑over‑year consumption thresholds, creates an exemption and ruling process, and gives the Energy Commission and Public Utilities Commission roles in allocating fund proceeds to local publicly owned utilities and electrical corporations for CARE/FERA and other low‑income programs. Several key parameters (the per‑therm and per‑kWh surcharge rates and one gas consumption increase threshold) are left blank in the text, leaving implementation decisions and economic impact uncertain until filled in.
At a Glance
What It Does
SB 1168 imposes a per‑therm surcharge on natural gas consumed by data centers or used to produce electricity for data centers, and a per‑kWh surcharge on electricity purchased from utilities and consumed by data centers. It requires utilities to collect the charges and CDTFA to administer them under the Fee Collection Procedures Law.
Who It Affects
Data centers with significant or growing energy use (electricity facilities ≥20 MW or customers whose consumption rose above statutory thresholds); public utility gas corporations and electric utilities required to collect the surcharges; local publicly owned utilities and investor‑owned electrical corporations that will receive funds for low‑income programs.
Why It Matters
The bill explicitly channels new, targeted utility surcharges to subsidize low‑income rate assistance, reallocating costs toward large energy consumers in the data center industry. It creates new compliance duties for utilities and a recurring revenue stream for low‑income programs, while leaving key rate and threshold values blank — a design choice that shifts material economic decisions to later rulemaking or amendment.
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What This Bill Actually Does
SB 1168 defines “data center” narrowly as a facility whose primary function is to process, store, or transmit digital information, either as a freestanding structure or as a portion of a larger building that uses environmental controls to support electronic equipment. It then attaches two parallel surcharges: one in the Public Utilities Code on natural gas consumed by data centers (or by those who burn gas to generate electricity primarily for data centers), and one in the Revenue and Taxation Code on electricity consumed by data centers and bought from a utility.
Not every gas or electricity customer is captured. The electricity surcharge attaches only when the data center facility has a total capacity of 20 megawatts or greater and the customer’s electricity consumption has increased by more than 25,000 kilowatt‑hours since 2021; the gas surcharge similarly targets customers whose gas consumption has increased by more than a specified number of therms since 2021 (the bill leaves that therm threshold blank).
Both surcharges also exclude entities that primarily use energy to manufacture tangible personal property.The bill makes utilities (public utility gas corporations and electric utilities, and purchasers from federal suppliers where applicable) responsible for collecting the surcharge at the time they bill customers; collected amounts become debts owed by the utility to the state unless refunded. Collections are remitted quarterly and are administered by CDTFA under the Fee Collection Procedures Law, which brings existing fee audit, refund, and enforcement mechanisms to bear.
Utilities must register with CDTFA and may deduct previously charged‑off accounts under generally accepted accounting principles; any recovered amounts later are payable with the next return.All net revenues, interest, and penalties flow into a new Data Center Excess Energy Usage Surcharge Fund. Money collected from local publicly owned electric utility territory is continuously appropriated to the Energy Commission for a Low‑Income Rate Assistance Program Account to buy down POU low‑income rates; money collected from electrical corporation (investor‑owned) territory is continuously appropriated to the PUC to buy down CARE and FERA benefits.
The bill creates an exemption/ruling pathway: a data center or other claimant can apply to the utility for an exemption, and either party may seek a CDTFA ruling — with collection suspended by the utility pending that ruling.
The Five Things You Need to Know
The surcharges take effect January 1, 2027; utilities begin collection with the first regular billing period on or after that date.
Electricity surcharge applies only when the data center facility has total capacity of 20 MW or greater and the customer’s electricity use increased by more than 25,000 kWh since 2021; the per‑kWh amount is left blank in the bill.
Natural gas surcharge covers gas consumed by data centers or gas used to produce electricity primarily for data centers; the statute includes a year‑over‑year therm increase test but leaves the numeric therm threshold unspecified.
CDTFA administers collection and enforcement under the Fee Collection Procedures Law, with surcharges due quarterly and utilities required to register with the department.
All net proceeds flow into the Data Center Excess Energy Usage Surcharge Fund, which is continuously appropriated: revenues from POU territories go to the Energy Commission for POU low‑income assistance, and revenues from investor‑owned territory go to the PUC to buy down CARE/FERA benefits.
Section-by-Section Breakdown
Every bill we cover gets an analysis of its key sections.
Legislative findings and policy purpose
The bill opens with findings that data center energy demand is growing rapidly in California, that rising energy costs pose a risk to residential consumers, and that low‑income assistance programs are subsidized by broad ratepayer bases. That preface frames the bill’s explicit policy choice: shift more of the burden for rate stabilization to large or rapidly growing data‑center energy users. For practitioners this signals the legislature’s intent to treat data center energy growth as an allocable cost driver deserving targeted recovery.
Natural gas surcharge mechanics and administration
These sections create the Data Center Excess Natural Gas Usage Surcharge Law. They define ‘data center,’ impose a per‑therm surcharge (left blank in the text) on gas consumed by data centers or by entities that burn gas to produce electricity primarily for data centers, and set the collection regime: public utility gas corporations collect, customers remitting transported gas are liable, and amounts are due quarterly. The article delegates collection and enforcement to CDTFA under the Fee Collection Procedures Law, prescribes registration for gas sellers, and establishes accounting rules for charged‑off accounts and subsequent recoveries — all standard revenue‑collection mechanics but applied to a narrowly targeted end‑use.
Electricity surcharge mechanics and fund appropriation
This part mirrors the gas article for electricity. It imposes a per‑kWh surcharge (rate blank in the text) on electricity purchased from an electric utility and consumed by data centers meeting a 20 MW facility capacity and a 25,000 kWh year‑over‑year increase threshold. Electric utilities must collect the surcharge at billing; collected amounts are treated as debts owed to the state and are remitted quarterly. The part also creates the Data Center Excess Energy Usage Surcharge Fund and prescribes continuous appropriation and a territorial split in fund flows (POU territory to Energy Commission for POU low‑income assistance; electrical corporation territory to PUC for CARE/FERA buy‑downs).
Process for claiming exemptions and suspending collection
Both the gas and electricity provisions provide an exemption application route to the collecting utility and allow either the utility or the data center to ask CDTFA for a ruling on exemption applicability. Importantly, the utility is not required to collect from the claimant while CDTFA issues a ruling. The statute also bars utilities from granting exemptions when statutory criteria are unmet, anchoring the exemption process in objective statutory tests and an administrative ruling pathway.
Who is liable and how collections appear on bills
The statutes make the data center or the gas/electric consumer liable for the surcharge; payment to a registered utility extinguishes that liability. Utilities must show the surcharge as a separate line item or at least notify customers that charges include the surcharge. The law treats surcharges collected by utilities that were not remitted as debts owed by the utility to the state, creating potential cash‑flow and balance‑sheet impacts for collecting utilities and a clear legal obligation to remit net collections.
Charged‑off accounts and recovery treatment
Both gas and electricity provisions relieve a utility from liability to the extent the underlying billed base is charged off as worthless under GAAP and permit a deduction on the utility’s return for such charged‑off amounts. If those accounts are later collected, the statute requires the recovered surcharge amounts to be paid with the next return. This mirrors other surcharge programs but requires utilities to reconcile charged‑off accounts and adapt billing and accounting systems accordingly.
Who administers, who spends, and how funds are allocated
CDTFA administers and collects the surcharges under the Fee Collection Procedures Law; the statute establishes the Data Center Excess Energy Usage Surcharge Fund in the State Treasury. The fund is continuously appropriated: amounts traceable to local publicly owned utility territories go to the Energy Commission (for POU low‑income buydowns), and amounts traceable to investor‑owned electrical corporation territories go to the PUC (for CARE/FERA buydowns). This split requires reliable territorial accounting and creates parallel channels for program delivery.
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Who Benefits
- Low‑income electricity customers (CARE/FERA recipients): The fund is expressly earmarked to buy down CARE/FERA benefits or POU low‑income programs, which should reduce out‑of‑pocket bills for qualifying low‑income households in both IOU and POU territories.
- Local publicly owned utilities (POUs): POUs stand to receive targeted buydown dollars from the fund for their low‑income rate assistance programs, easing the need to cross‑subsidize these programs from their broader rate base.
- Public agencies (Energy Commission and PUC): The Energy Commission and PUC gain new continuous appropriations and program authority to apportion low‑income assistance funds and to set related program infrastructure, increasing their direct role in rate affordability interventions.
Who Bears the Cost
- Data center operators and customers who supply them: They face direct per‑therm and per‑kWh surcharges if they meet the facility size or year‑over‑year growth tests, increasing operating costs and potentially affecting site selection and load management decisions.
- Public utility gas corporations and electric utilities: Utilities must implement collection, billing line‑items, registration with CDTFA, and quarterly remittance processes, and they bear temporary liability for surcharges treated as debts to the state; they also face increased accounting complexity for charged‑off accounts and recoveries.
- California Department of Tax and Fee Administration (CDTFA): CDTFA inherits new administration, audit, refund, and enforcement obligations under the Fee Collection Procedures Law and will need to promulgate regulations, process exemption rulings, and manage returns — tasks that require staffing and operational capacity (the statute allows reimbursement for collection expenses).
Key Issues
The Core Tension
The bill forces a trade‑off between two legitimate goals: raising targeted revenues from fast‑growing, large commercial consumers to protect residential low‑income ratepayers, versus avoiding punitive or distortionary costs that could drive data centers to relocate, invest in self‑supply, or restructure contracts. In short, it asks whether addressing short‑term affordability by reallocating costs onto a single industry is preferable to broader rate design reforms that spread costs more evenly — and it leaves key rate and threshold choices to later implementation, amplifying that dilemma.
SB 1168 stitches together two different statutory frameworks (the Public Utilities Code for gas and the Revenue and Taxation Code for electricity) and layers them onto existing collection machinery. That creates immediate implementation frictions: utilities must map customers to ‘data center’ uses, determine whether consumption increases are attributable to data center loads rather than other business changes, and segregate territories for fund allocation.
The bill’s blank fields — notably the per‑therm and per‑kWh surcharge rates and the gas therm increase threshold — are consequential design gaps. Leaving those numeric levers unspecified pushes major economic decisions into subsequent rulemaking or amendment, which will determine the surcharge’s real burden and how data centers respond (demand management, on‑site generation, relocation, or contracting strategies).
The exemption and CDTFA ruling process offers a procedural safety valve but also invites litigation and administrative delay. Utilities suspend collection while a ruling is pending, which can defer revenue flows and complicate quarterly remittances.
The liability construct — treating unremitted surcharge amounts as debts the utility owes the state — protects the Treasury but shifts short‑term cash‑flow risk to utilities and could affect their credit and regulatory filings. Finally, the territorial split in fund appropriation requires precise accounting of where electrons or therms were delivered; meter‑level aggregation, bilateral wholesale arrangements, or behind‑the‑meter generation could create disputes about whether a given energy increment is covered by the surcharge.
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