Having been competing for years between San Jose and PG&E, the city and utility giant announced a new plan for large energy users on Friday, which is a sure San Jose remains an attractive investment location while increasing its tax base and lowering its resident bills.
After frustration escalated to the point where San Jose leaders explored building municipal utilities to meet future demand, the bipartisan hammered a deal that promised infrastructure and speed improvements, even though the city could still pursue the option, it should PG&E be unable to meet its obligations.
The agreement sets goals and key results for the top 10 priority projects in North North San Jose and downtown. The 10 projects the mayor’s office said are confidential — although Mayor Matt Mahan acknowledged that including Wies Bank’s net-zero data center and housing development — would equal 880 megawatts of new loads, or about 80% of the city’s current energy use. Ultimately, the grid upgrade PG&E promises to support new power demand of 2,000 megawatts.
“What I want to explore since taking office is the resetting of our relationship with PG&E, and how we work more deeply and get real guarantees related to performance from PG&E,” Mahan said in an interview with Bay Area News Group. “This implementation framework (the first such implementation framework in the PG&E field) is what creates a binding performance obligation for the speed and power certainty of large load customers. These customers may be R&D facilities, other manufacturing uses, data centers, etc.”
While city officials never intend to replace municipal utilities directly, energy reliability has become an increasing focus, especially in new services in growth areas such as the city and North San Jose.
With high land and development costs hampering large investments in San Jose, the certainty of “energy” (capable of connecting to the grid and having reliable power) has become a major hurdle, making Friday’s announcement crucial as San Jose hopes to be a major data center hub.
Land use consultant Bob Staedler, who previously worked at the San Jose Redevelopment Agency, called the news a huge milestone, pointing out from his experience that developers must invest considerable upfront expenses for important projects.
“Getting these promises can accelerate San Jose’s economic prosperity ten times,” Staller said. “One thing you hear is that the biggest hurdle is how long it takes. Large data centers can only happen if they are ready.”
Assisting the city’s demand for more electricity, Missouri-based utility development company LS Power has built two major high-voltage transmission lines in the coming years to improve the electrical reliability of the region. The first transmission line runs through North San Jose and lands from Fremont along a path near the regional wastewater facility. The second row starts from the Metcalf substation north of Coyote Valley to downtown San Jose. Mahan said San Jose's power capacity could grow to 3 GW.
Over the past few months, PG&E has announced or carried out several projects to improve reliability and performance and improve capacity, including upgrades at the substation in the downtown area near Diridon Station and the intersection of Coleman Avenue and Santa Teresa Street. PG&E CEO Patti Poppe said the company intends to invest $2.6 billion in existing facilities and expand its infrastructure.
“We don't want our companies to leave because they can't get the power of speed, they can't get the city to allow what they need,” Poppe said in a news conference on Friday. “This historic agreement means San Jose is open to business. It means our tech companies can thrive here, grow here and continue to invest here, which is good for everyone.”
Deputy City Manager Manuel Pineda said he expects to build more electrical infrastructure in the next five years, rather than the first 50 years, based on the growth level.
Mahan said there is a great demand for data centers because cutting-edge, low-latency computing power can help map R&D labs that want to be as close as possible to these data centers. He added that they can help the city maintain its competitive advantage in the global AI competition.
For San Jose residents, deals with PG&E could bring huge benefits, including more jobs and a significant increase in the city’s tax base as it faces financial challenges due to stagnant incomes and increased costs. A 99 MW data center can generate $3.5 million to $6.4 million in annual general fund revenue, which may be used for critical needs such as public safety, road maintenance or other essential city services.
Additional energy consumption can also reduce residents' bills. PG&E estimates that 1 GW may reduce bills by 1-2%, as California's power grid is currently less than about 40%, indicating too much capacity for other uses.
“The myth here is that when we add these data centers, the grid will actually reduce resilience,” Poppe said. “In fact, the grid will be more reliable and resilient because new revenue from these big tech companies will fund the rebuilding of that grid and make it more affordable for customers.”
The agreement with PG&E also requires utility providers to fund six roles in the city’s public works and economic development sector, which Mahan said will help both parties work more effectively and effectively together to predict projects, remove obstacles and achieve deadlines. Pineda said the six positions represent a commitment of nearly $2 million.
In addition to funding positions and tracking performable performance metrics, PG&E also agreed to provide 250 MW of electrical capacity for the first phase of economic land for the development of regional wastewater facilities.
PG&E has six months to resolve any failure to fulfill its obligations. If that is not the case, San Jose could terminate the agreement within 30 days and reconsider exploring the establishment of municipal utilities.
“We first focus on the lowest risk approach we consider to deliver these projects, which work more closely with PG&E, but if the utilities fail to deliver, we will return to pursuing municipal utility.”
Original Published: July 25, 2025, 11:00 am