With San Jose pushing to attract manufacturing, research labs and data centers, city officials say PG&E is on track to provide power to a dozen major projects by 2030, as highlighted in a deal inked with the utility giant last year.
The commitments come as San Jose will have an abundance of power by 2028, when LS Power finishes construction of two new transmission lines that are expected to add 2,000 MW to the area. With LS Power’s permits expected to be issued by June, public officials hope San Jose’s power readiness will position the city to become a premier data center hub, spur the local economy and add another revenue stream for the city’s coffers.
“Large energy customers have the potential to generate strong revenues, and building data centers in San Jose means they are built and operated more cleanly than in other states,” said Erica Garaffo, the city’s large-load energy customer development lead. “In just the past eight months, tighter coordination has shifted San Jose from infrastructure constraints to infrastructure-driven growth.”
Frustrations with PG&E over reliability issues had prompted San Jose to evaluate creating its own municipal utility before reaching an implementation agreement — the first ever between PG&E and any city.
The agreement created service delivery guarantees for several 20 MW or greater projects and commitments from the energy provider to fund a city development team consisting of multiple positions in the city’s public works and economic development departments. The costs of funding the team, including equipment, in the first year exceed $1.6 million, according to city documents.
It also committed PG&E to providing electrical capacity for the first phase in redeveloping the Regional Wastewater Facility’s economic lands. San Jose is currently negotiating with Prologis, the world’s largest developer and owner of logistics real estate, about building a new data center and an advanced manufacturing campus there.
Along with touting the agreement’s ability to attract investment, city officials say will help fund critical city services. Garaffo noted that data centers between 50 MW and 99 MW can generate between $3 million and $7 million in general fund revenue.
“Significant economic drivers, including data centers, advanced manufacturing and other large energy users, have faced growing uncertainty about electric capacity, delivery, timelines and accountability,” Garaffo said at Monday’s Transportation and Environment Committee meeting. “These customers are critical to the city’s fiscal health. They generate significant general fund revenue, create high-quality construction and permanent jobs and typically require fewer ongoing city services relative to the revenue that they produce. Ensuring San Jose can attract and retain these customers is essential to maintaining long-term fiscal stability.”
While the exact projects included in the agreement remain confidential, what is known is that PG&E has already provided power for two of them.
The first was a new data center on Equinix’s campus in South San Jose on Great Oaks Blvd., which added 20 MW, bringing the site’s total to 40 MW. That project alone is expected to generate $2.5 million annually for the city’s general fund.
Garaffo said PG&E expects to deliver energy to the third project by June.
While concerns have surfaced about the impacts on ratepayers, PG&E officials maintain that one GW of additional use could reduce bills by 1-2% by spreading out some of the fixed costs. Garaffo added that most of the cost burden for infrastructure improvements falls on developers, though there is a mechanism to recoup some costs when upgrades benefit other ratepayers.
“The data center is required to pay for and/or build out all of the infrastructure that’s required to bring them up onto the grid,” Garaffo said.
However, the benefits the city has ascribed to data center development have not assuaged concerns about potential environmental harm.
Ellina Yin, director of government relations and strategy at AllAI Consulting, LLC, noted that Equinix’s latest data center had 36 backup diesel generators and did not use recycled water because it was not feasible.
“When we think about the cumulative impact of San Jose saying that they want to be the center of the AI revolution and we want to build out all of these data centers, what is the cumulative health impact that the residents are going to be facing that is our burden to carry?” Yin said.
Masheika Allgood, founder of AllAI Consulting, added that she believed there were flaws in the environmental review process and the city could not blindly rely on others’ efforts.
“When things get missed in those processes, it is the residents of San Jose who will pay for those errors,” Allgood said. “It is incumbent upon all of you to oversee these evaluations and assure the people of San Jose are well protected. The decisions this committee and this broader Council will make now will determine the survivability of the entire Bay Area over the next 30 years.”
District 4 Councilmember David Cohen said it was important to understand the ramifications and implications of developing data centers, suggesting that the city share more information as it becomes available, given residents’ interest.
“We ought to be very clear about what our expectations are, and it’s not just for the discussions we have with the developers of data centers, but for our public to understand,” Cohen said.