California Gov. Gavin Newsom has decided to keep his state attractive to hyperscale developers and leave the hard questions about water and power to future studies, according to Politico's coverage of what it calls his data center gamble. Over the past year Newsom vetoed a bill requiring operators to report water use, signed a watered-down ratepayer measure that stripped out a special electricity rate for data centers, and let the regulatory push collapse into a single study requirement. The wager is that California can capture the AI buildout without forcing the industry to disclose what it consumes.
The casualty most relevant to cooling is Assembly Bill 93, which would have required data center owners to estimate expected water use at licensing and report actual consumption at renewal. Newsom vetoed it, writing that he was reluctant to impose rigid reporting requirements on the sector without understanding the full impact on businesses. That leaves California, the country's second-largest data center market, with no mandatory accounting of how many gallons its facilities pull for evaporative cooling. The state already cannot manage what it cannot measure, and the veto locks in that blind spot through the next legislative cycle.
Water disclosure matters because cooling architecture is where the gallons go. A facility running open-loop evaporative towers can consume millions of gallons a day, while a closed-loop or air-cooled design draws a fraction of that. Without reporting, regulators and residents in Gilroy and Monterey Park, where developers have already faced organized opposition, cannot tell which design they are getting. The same opacity drove the national fight covered in our reporting on the Durbin transparency act, and it leaves California operators free to choose the cheapest cooling method rather than the lowest-water one.
The companion fight ran through Senate Bill 57. Early versions would have created a separate electricity rate structure for data centers, shielding households and small businesses from the grid upgrades these loads demand. The Assembly Appropriations Committee eliminated that special pay structure, leaving SB 57 as a directive for the California Public Utilities Commission to study cost-shift impacts, with findings due January 1, 2027. The bill imposes no new charges and no rate class. It studies the problem the original bill tried to solve.
That outcome maps directly onto the water-power tradeoff that defines cooling economics. An operator that switches to air cooling or warm-water liquid loops to cut water draw raises electricity demand for chillers and fans, and in California that added load now flows onto a shared grid with no special tariff to contain it. The state has chosen to let developers optimize for their own cost, then sort out who pays for the transmission later.
The industry's leverage came from a September Stanford report warning that California risks losing property-tax revenue, union construction jobs, and AI talent if data center construction moves to other states. That threat shaped the soft-touch result, the same dynamic visible in the grid constraints reshaping where projects land nationwide. For cooling vendors and design teams, Newsom's gamble removes the regulatory forcing function. Nothing in current California law pushes a developer toward low-water closed-loop or toward grid-friendly thermal design, so capex decisions on heat rejection will be made on local utility cost and water price alone until the 2027 studies arrive. By then much of the first hyperscale wave will already have its cooling locked in.