In the rush to build colossal data-processing centers for Silicon Valley’s suddenly booming artificial intelligence industry, San Jose is positioning itself as the Bay Area’s epicenter for data center development, dominating PG&E’s internal “pipeline” of proposed and under-construction projects it plans to power.
PG&E’s “data center project pipeline” shows that for San Jose, it has received requests to supply electricity to 11 projects totaling 1,630 megawatts of capacity — enough for 1.2 million homes, more than three times the number of housing units in San Jose. Hayward trails in second place, with four projects for 975 megawatts.
Data centers hold thousands of computer chips that process AI tasks, from chatbot queries to complex scientific research. Amid a global frenzy over AI, major Silicon Valley technology companies have invested hundreds of billions of dollars, with venture capitalists backing hundreds of Bay Area AI startups.
Concerns about the facilities also extend to effects from their massive power consumption on the reliability of electricity supplies, and on the water supply from their heavy consumption via cooling and power generation. Backup generators, usually diesel-powered, raise worries about pollution and community safety.
San Jose Mayor Matt Mahan has embraced AI and the data centers needed to process it. City officials highlight San Jose’s location within 25 miles of dozens of Fortune 500 tech headquarters — proximity that jacks up processing speed for the Silicon Valley companies using data centers for AI.
“City Hall’s enabling stance is a major driver,” said San Jose civic-engagement consultant Ellina Yin, who is working with the UC Berkeley Human Rights Center to assess impacts from data centers. Availability of large development sites and water infrastructure, plus a power-supply deal between the city and PG&E add to the appeal for data center developers, Yin said.
Easy money for San Jose?
City officials see data centers as a rare opportunity to generate substantial revenue with minimal municipal costs.
“A new 99-megawatt data center fully ramped up and running would provide an estimated $3.5 to $6.4 million annually in new property tax and utility user tax and require few, if any, additional City services,” a March memo to the City Council said.
Data centers are popping up from coast to coast, in cities and rural areas, some in sizes and processing capacities dwarfing those planned for San Jose. Nearly everywhere they appear, controversy follows.
“Utility companies have spent billions of dollars updating the electrical grid to accommodate the unprecedented energy demands of AI data centers and appear to recoup the costs by raising residential utility bills,” U.S. Sens. Elizabeth Warren (D-MA), Chris Van Hollen (D-MD) and Richard Blumenthal (D-CT) said in a letter this week to major Silicon Valley tech companies and data center operators — including Equinix, a Redwood City firm building data centers in San Jose’s Santa Teresa neighborhood. Equinix did not respond to requests for comment.
Consumer advocates warn that PG&E’s unprecedented buildout will likely drive up electricity bills. When PG&E spends on new transmission infrastructure, it’s allowed to hike customers’ power rates to net about a 10% profit from those investments per year for the decades-long life of a project.
“The people who pay for it are current ratepayers,” San Jose AI consultant Masheika Allgood said.
PG&E reported last year that infrastructure for data centers will require it to spend $500 million to $1.6 billion for every 1,000 megawatts of capacity. The utility’s pipeline for Bay Area data centers it intends to power in the next few years amounts to a total of 3,500 megawatts, indicating capital spending will hit $1.75 billion to $5.6 billion.
If data centers’ power demands outstrip supply, consumers’ energy bills will rise, South Bay and Peninsula state Sen. Josh Becker warned last week at a hearing before the independent state oversight agency Little Hoover Commission.
PG&E says data centers should lower rates
PG&E, however, argues that the buildout should eventually lower residential power rates. The utility projected in July that in the next decade it would provide 10 gigawatts of electricity for data centers — equivalent to the power used by 7.5 million homes — bringing revenue from the centers that could allow it to cut residential power rates by 10% or more.
A footnote cautioned that “actual results could differ materially from this forecast.” The utility in October cut the forecast to 9.6 gigawatts.
The California state Public Advocates Office calls rate-cut projections such as PG&E’s “optimistic.” Numerous risks surround mega-investment in data center power infrastructure, including plunging electricity demand if the AI boom shrinks or goes bust or if new technology slashes data center power consumption, or if solar-powered data centers in space pan out. Should hefty revenues not materialize for utilities, “the significant costs that utilities incurred to serve these data centers will be passed on to existing ratepayers,” the Public Advocates Office warned.
In July, the city of San Jose announced a deal with PG&E requiring the utility to upgrade substations, build a new power line and meanwhile, provide temporary electricity connections to sprouting data centers that would make the city “the West Coast’s premier destination for data center development.” San Jose agreed to streamline PG&E’s work.
Effects on urban vibrancy, animals, farmland
Cities’ rush to capitalize on the AI boom means some projects are moving forward despite findings of negative impacts.
Two planned PG&E-powered data centers combined with housing in downtown San Jose, one two blocks northwest of San Pedro Square and one near the San Jose McEnery Convention Center, are “not likely to contribute to a more vibrant urban environment contemplated in the General Plan,” city planning director Chris Burton wrote in March memos to the City Council.
A planned Microsoft data center on Alviso-Milpitas Road in North San Jose would negatively impact habitats, wetlands and animals, including burrowing owls, a February report from the city said. A large Amazon data center going ahead in Gilroy would eliminate “farmland of statewide importance,” Gilroy city staff concluded.
The two downtown San Jose proposals are proceeding under a plan approved last year to streamline projects of “extraordinary benefit” to the city.
“Our long-term vision is with multiple data centers and housing clusters,” Andrew Jacobson, an executive at the projects’ Canada-based developer, Westbank, told this news organization last year. “The idea is to connect them all and create a downtown San Jose district energy system.”
Pollution, safety fears
Seventeen of the 26 data centers in PG&E’s pipeline are expected to start operating in the next five years, the utility said. PG&E refused to divulge any locations. A spokeswoman for the city of San Jose said she could not provide site information for PG&E-powered data center power projects not yet submitted to the city.
Local governments are “just going full steam ahead with building this out, already knowing about communities in other states that are really struggling with their water supplies and energy impacts,” said Linda Gordon, a supervising attorney at UC Berkeley’s Human Rights Center.
After they’re built, data centers produce “considerably lower” numbers of jobs than other commercial enterprises, San Jose planning director Burton’s memo said.
In San Jose’s Santa Teresa neighborhood, a data center project under construction by Equinix is slated to include 36 diesel backup generators to ensure 24/7 operation.
“They shouldn’t be this close,” said Lisa Campbell, 62, a technology consultant who has lived near Santa Teresa Boulevard for 26 years. She worries about breathing diesel exhaust, and about the nearly 300,000 gallons of diesel — almost half an Olympic swimming pool’s worth — to be stored on site. “What if that blows up?”
Nearby, retired IBM engineer Ken Hares, 92, sees a silver lining to the development.
“They don’t employ a whole lot of people,” Hares pointed out. “If that were a bunch of smaller businesses, there would be a lot more traffic.”
Becker sees California at a crossroads, with residents and small businesses at risk of subsidizing the data center surge through jacked-up power bills. “Data centers could be a boon,” Becker said, “or they could be a big new problem.”