CPUC Weighs Cost Recovery for Interconnection of Large Load, Including Data Centers

Legal Alert

01.30.2026

The California Public Utilities Commission (Commission) is weighing how to address the (often substantial) cost of transmission infrastructure and facility upgrades needed to interconnect an increasing number of large load customers, such as data centers, in Pacific Gas and Electric’s (PG&E) service territory.

As retail interconnection requests at the transmission level have grown, PG&E has sought to address a gap in its tariff. Because PG&E’s existing tariff rules only govern distribution-level interconnections, customers have traditionally needed to obtain Commission approval for transmission-level service through “exceptional case” filings. To streamline the transmission-level interconnection process, PG&E filed an application on November 21, 2024, seeking approval from the Commission of Electric Rule No. 30 (Electric Rule 30), which would create a uniform tariff to reduce the time and costs required for transmission-level interconnection applications.[1] On July 24, 2025, the Commission approved an interim implementation of Electric Rule 30, conditioned on applicants agreeing to pay up front for necessary transmission infrastructure with the cost allocation of refunds determined by a future decision.[2]

Although the Commission has yet to issue a final decision of Electric Rule 30, the Commission’s recent approval of PG&E’s agreements with STACK Infrastructure (STACK) and Microsoft provide insight into the Commission’s approach on costs and refunds associated with interconnecting transmission facilities for large load customers.

BARC Methodology

PG&E’s Electric Rule 15 governs the standard process for retail customers seeking to interconnect at the distribution level (less than 50kV). Broadly, a customer will make an up-front payment equal to the estimated direct cost of energization (i.e., the cabling and other facilities needed to interconnect the customer), subject to certain allowances, along with a charge to cover PG&E’s estimated liability for state and federal income tax. Once the customer is energized, it becomes eligible for a refund of those up-front payments based on its current load and expected future revenues under a formula known as the Base Annual Revenue Calculation, or BARC.

In its July 2025 authorization of the interim Electric Rule 30 implementation, the Commission deferred a decision on customer refunds, including the applicability of the BARC methodology to transmission-level interconnections, until the Commission issues a final decision on PG&E’s proposed Electric Rule 30.[3]

Although the Commission has yet to address BARC changes in PG&E’s Electric Rule 30 proceeding, the Commission’s parallel disposition of PG&E’s agreements with STACK and Microsoft reveal a potential shift away from large, up-front transmission-level-load refunds under the traditional BARC methodology toward slower refund timelines using actual, rather than estimated, costs.

STACK

In Resolution E-5420, the Commission approved with modifications PG&E’s Advice Letter (AL) 7569-E, regarding agreements to energize STACK’s 90 MW data center in San Jose, California, including construction of major transmission facilities.[4] The Commission found that using the traditional BARC refund structure could allow STACK to receive large refunds immediately—potentially $50 million in the first refund year—before PG&E collected sufficient net revenue to justify the expense.[5] Specific to STACK, the Commission modified BARC’s refund structure: rather than allowing an immediate refund based on estimated future revenues, payback was limited to 75% of STACK’s actual annual net revenue.[6] The Commission also included an Income Tax Component of Contribution (ITCC) adjustment and extended the refund period from 10 to 15 years.[7] The Commission noted that STACK would still receive its full refund but over a longer period of time.[8]

The Commission also stated that its resolution of STACK’s agreement is not precedential as it relates to the ongoing Electric Rule 30 proceeding.[9]

Microsoft

In Resolution E‑5439, the Commission approved with modifications PG&E’s AL 7635-E, regarding agreements to energize Microsoft’s 90 MW data center in San Jose, California. Similar to STACK, the Commission imposed stricter refund conditions than what BARC ordinarily imposes.[10]

In its comments on the draft resolution, PG&E noted that the Commission’s refund proposal could disincentivize data center load from investing and choosing to build data centers within the state.[11] The Commission responded in its resolution that it was unpersuaded by PG&E’s policy concerns.[12]

Under the agreements approved by Resolution E-5439, Microsoft will pay all up-front costs for 115 kV transmission upgrades, and PG&E will construct facilities on an actual cost basis.[13] Just as with STACK, the Commission capped annual refunds at 75% of PG&E’s annual net revenues from Microsoft, with an ITCC adjustment, and extended the refund period to 15 years.[14] Just as with STACK, the Commission stated Microsoft’s case should not prejudice its ongoing Electric Rule 30 proceeding.[15]

Google

PG&E recently sought Commission approval for yet another exceptional case agreement via AL 7785-E, submitted on December 18, 2025. This AL seeks to connect Google’s 250 MW San Jose data center facilities to PG&E’s transmission system.[16] The Commission has yet to issue a draft resolution.

PG&E asked that Google’s eligibility for refunds be based on the revenues it generates after service begins and that the Commission should calculate refunds using the standard BARC method—requests PG&E made in its previous ALs for both STACK and Microsoft.[17] PG&E stated refunds would apply only to facilities Google builds and transfers to PG&E and that the refund amount will be equal to the lower of actual costs or a binding cost estimate to prevent Google from receiving refunds above pre-committed costs.[18]

The Public Advocates Office protested PG&E’s request on January 7, 2026, asking the Commission not to approve AL 7785-E unless it modifies the refund methodology consistent with its prior STACK and Microsoft resolutions, which would limit Google’s annual refunds to 75% of annual net revenues, with adjustments for ITCC, and extend the refund period from 10 to 15 years.[19]

Things to Watch

The Commission has yet to issue a resolution for Google’s AL 7785‑E; it therefore remains to be seen whether the Commission will impose the 75% refund cap and 15-year period or whether it permits BARC as filed with enhanced cost caps.

The Commission also has yet to issue a final decision in its Electric Rule 30 proceeding. On January 9, 2026, the Commission directed parties to submit further testimony and comment on questions related to cost allocation and BARC and set a new proceeding schedule, under which parties must submit opening briefs by April 10, 2026, and reply briefs by April 24, 2026.[20]

[1] Application (A.) 24-11-007, Application of Pacific Gas and Electric Company (U39E) for Approval of Electric Rule No. 30 for Transmission-Level Retail Electric Service (Nov. 21, 2024).

[2] D.25-07-039, Decision Partly Granting and Partly Denying Pacific Gas and Electric Company’s Motion for Interim Implementation of Electric Rule Number 30 (July 28, 2025) (Interim Decision).

[3] Id. at 33; See Shilpa Ramaiya, Electric Rule No. 15 Distribution Line Extensions, Pacific Gas & Electric Company (2024), https://www.pge.com/tariffs/assets/pdf/tariffbook/ELEC_RULES_15.pdf.

[4] Resolution (Res.) E-5420 (Oct. 30, 2025).

[5] Id. at 2, 4–5.

[6] Id. at 2, 11–12.

[7] Id. at 17–18.

[8] Id. at 2.

[9] Id. at 12.

[10] Res. E-5439, page 1 (Jan. 15, 2026).

[11] Comments of Pacific Gas and Electric Company on Draft Res. E-5439, page 5 (Jan. 2, 2026).

[12] Res. E-5439, pages 23-24 (Jan. 15, 2026).

[13] Id. at 4-5.

[14] Id. at 16-17, 26.

[15] Id. at 17, 25.