California just signed what its governor calls the most comprehensive data center regulation in the country. The industry warns it could push projects to other states.
Some, probably. Many of the ones that leave were never going to be built.
For investors in the infrastructure around data centers, that is the useful part of the story. Data center regulation does not stop demand. It sorts it.
What California signed
On September 21, Governor Newsom signed seven bills covering electricity, water, reporting, and environmental review.
The core is SB 886 and AB 2383, together the California Technology Innovation and Ratepayer Protection Act. Data centers will bear the full cost of the transmission upgrades they need, under new interconnection agreements starting January 1, 2027. Facilities that disconnect within ten years or miss their projected load ramp owe early termination fees. A generation tariff adds a minimum ten-year obligation to pay incremental generation costs, backed by upfront collateral or prepayment. The Public Utilities Commission sets the size threshold, capped at 25 megawatts.
The rest fills in the edges. AB 2469 blocks approvals until developers disclose projected water use. AB 2619 requires reporting of water sources and consumption. AB 1577 adds energy reporting to the Energy Commission, including power usage effectiveness. SB 887 removes data centers from blanket environmental exemptions and offers streamlined review to projects that meet state conservation standards.
Newsom framed it plainly: those profiting from data centers "aren't doing so at our expense."
The Data Center Coalition, whose members include Google, Microsoft, and OpenAI, opposed the package and argued it would hurt the state's competitiveness.
Ohio already ran the experiment
We do not have to guess what this does to demand. Ohio went first.
In July 2025, Ohio's utility regulator approved AEP Ohio's data center tariff. New facilities above 25 megawatts pay for at least 85% of their subscribed capacity for up to 12 years, whether they use it or not, with exit fees and financial assurance on top.
Before the tariff, AEP Ohio had received inquiries and preliminary service requests from more than 50 customers at over 90 sites, totaling more than 30,000 megawatts. By February 2026 its forecast had fallen to about 13,000 megawatts. The utility's explanation was simple: it now reports only the load that data center owners have signed contracts for.
More than half the queue vanished once someone had to post collateral. That was not lost demand. It was demand that never existed in a form anyone would pay for.
Announced load is not demand
This is the mistake to avoid in AI infrastructure underwriting.
For three years, every data center announcement has been treated as a demand signal: for power, for land, for fiber, for towers, for everything that touches a campus. Utility queues filled with requests that were never going to become buildings. Headline gigawatts became the basis for valuations several steps removed from the actual buildings.
Cost-causation rules end that. When a developer has to fund its own transmission upgrades, sign a ten-year take-or-pay commitment, and post collateral, the only projects left in the queue are the ones with a tenant, a balance sheet, and a reason to be there.
That is a smaller number and a far more reliable one. For an investor, a smaller number you can trust is worth more than a large number you cannot.
Where data center regulation moves the value
The rules now shape the siting map, and they will keep doing so. California already has nearly 300 data centers, with 54 more reportedly planned. Oakley, Gilroy, and Richmond have enacted moratoriums. In a July poll by the Public Policy Institute of California, nearly three-quarters of residents opposed AI data centers in their communities.
Projects that clear these rules will cluster where power is available, the tariffs are known, and the community has agreed. Those locations are often outside the traditional hubs, and they need fiber: long-haul routes in, diverse paths for redundancy, metro and middle-mile networks around the campus, and connectivity for the workforce and suppliers that follow.
That produces three practical rules for allocators:
- Underwrite signed load, not announced load. A campus with a collateralized utility contract is a counterparty. A press release is a hope.
- Treat regulatory geography as an input. Tariff structure, water rules, and local permitting now shape where capacity lands as much as land prices do.
- Own the connective layer, not only the building. Fiber serving committed sites earns from the campus and from everything that grows around it. Fiber built on speculation strands with the speculation.
Where we sit
Standard consolidates independent broadband and telecommunications infrastructure across North America: fiber networks, fixed wireless operators, and the assets around data centers and interconnect. Independent networks in secondary markets were built for households and businesses. As committed load moves outside the traditional hubs, some of them become part of the connective layer for what comes next.
The discipline is the same one the regulators are now enforcing. Count what is contracted. Price what is real. We lay out the approach for allocators on our investors page.
The queue got smaller. The opportunity got clearer.
General commentary on infrastructure markets. Not an offer to sell or a solicitation of an offer to buy any security, and not investment advice.
