Powering Silicon Valley's AI Dreams
This post is on my substack techno-statecraft: here.
Aerial View of Santa Clara’s Data Center Cluster. Taken by author, 2025.
Silicon Valley has always run on power, but the question of who delivers it is suddenly reshaping the map. Just a few miles apart, San José and Santa Clara are charting starkly different paths. Santa Clara’s municipal utility, once the quiet backbone of the Valley’s server farms, has hit a wall. Its grid is saturated, its rates rising, its options limited. San José, meanwhile, has gone in the opposite direction—turning to PG&E, the state’s embattled investor-owned utility, and striking a landmark deal to guarantee gigawatts of new capacity for AI facilities.
These diverging strategies tell us something larger about the politics of infrastructure today. What looks like local planning disputes is in fact the embedding of cities and utilities—sometimes reluctantly—into the industrial strategy behind the AI boom. Where resilience once meant decentralization, it now means securing gigawatt guarantees from investor-owned utilities. This new infrastructural order fuses public authority and private growth imperatives in the name of competitiveness. But the same old “growth machine” dynamics are also at play.[1]
In 2019, Mayor Sam Liccardo floated the idea of creating a municipal utility after PG&E’s wildfire-prevention shutoffs left 60,000 residents without power, arguing the city needed its own lines, microgrids, and storage to ensure reliability. At the time, PG&E was bankrupt, widely blamed for wildfires, and politically toxic. Six years later, the city has not only abandoned that push for independence but entered a landmark agreement with PG&E to guarantee power delivery for a wave of new data centers. San José now markets itself as the “West Coast’s premier data center hub.” The reversal reflects less a change in sentiment than a change in scale. The rise of energy-intensive AI infrastructure has reordered local priorities, turning utilities once seen as liabilities into indispensable partners in urban development.
The political economy of Silicon Valley’s electricity regime explains this pivot. For decades, Santa Clara—San Jose’s neighbor—dominated data center development. Its municipal utility, Silicon Valley Power (SVP), offered some of the lowest industrial rates in California, undercutting PG&E by as much as 40 percent. Coupled with a dense fiber network, the pricing advantage drew more than 55 data centers into a seven-square-mile cluster north of El Camino Real. Today, those facilities consume 60 percent of the city’s power. The fiscal returns are substantial—roughly $41 million annually in tax and utility payments—but SVP has reached its limits. By late 2024, it announced it could no longer accommodate new data centers until transmission upgrades finish in 2029. At precisely this moment, San Jose entered with PG&E agreement, promising “speed and certainty” backed by 2 gigawatts of new transmission capacity. The juxtaposition highlights two competing utility models. One is Santa Clara’s city-owned grid constrained by scale. The second is PG&E’s investor-owned network, which profits from expansion and has every incentive to chase large new loads.
The new projects illustrate how infrastructure and land are being reorganized around data centers. In April 2025, San Jose approved Microsoft’s 99MW campus in Alviso, requiring removal of nearly 80 trees, demolition of an existing water district visitors’ center, construction of 224 natural gas backup generators, and the displacement of an unhoused encampment. The facility sits adjacent to the Los Esteros Energy Center, an industrial zone now effectively repurposed as a computing district. Terra Ventures, working with Arcadis, has proposed a natural-gas-powered facility nearby that integrates Bloom Energy fuel cells, absorption chillers, and even a greenhouse marketed as a community amenity—on land once pitched for an entertainment complex. Meanwhile, PG&E itself, in partnership with Westbank, plans a 200MW downtown campus linked to thousands of housing units, with a district energy system that will use waste server heat to supply hot water to apartments. Each project combines private capital with public infrastructure narratives—jobs, community amenities, or clean energy branding. But their core function is simply to provide uninterrupted computing capacity for AI workloads. In April 2025, San Jose’s City Council unanimously approved the first two projects under Mayor Matt Mahan’s new Innovative Project Pathway Program that aims to attract development through tax and impact fee abatement.
The alignment of municipal governments, utilities, and technology firms is straightforward. San Jose officials estimate each data center could bring $3 to $7 million annually in property and utility tax revenue. PG&E has pledged $2.6 billion in infrastructure investment in the South Bay between 2026 and 2035, tied explicitly to data center growth. For companies like Microsoft, Meta, and Google, the ability to secure megawatt-scale commitments from PG&E determines whether their facilities can be built on time. For utilities, these projects guarantee a stable baseload customer whose growth justifies transmission upgrades. PG&E executives now present data centers as “good news” for everyone, claiming that each gigawatt of new load could reduce average household bills by one to two percent. Infrastructure expansion is sold as universally beneficial, even as costs are, in reality, unevenly distributed and profits accrue most directly to the utility and its largest industrial customers.2
Santa Clara provides a clear example of this inequality. Its municipal utility’s rate structure discounts bulk users while charging households more as consumption rises. When SVP built out new substations and lines to accommodate data center demand, residential bills rose—8 percent in early 2023, 10 percent in 2024, and then 5 percent in 2025 to cover higher construction costs and fund new infrastructure for data center expansion. Planning commissioners raised concerns about land commitments, diesel generator emissions, and water use for cooling. Yet the fiscal contribution made resistance politically difficult. By May 2025, SVP admitted it had capped out. Requests to add 500MW of new load could not be met until at least 2029. In the process, the utility demonstrated the hard limits of the municipal model when confronted with exponential AI-driven demand. More scale is needed!
The technological fixes proposed in San Jose point to the way constraints are managed within the system rather than avoided. Microsoft’s Alviso project will be supported by an Enchanted Rock microgrid fueled with natural gas sourced from food waste. PG&E and Westbank’s downtown development promotes district heating as an ecological benefit of concentrated computing. Terra Ventures markets direct-current fuel cell integration as an efficiency gain. These measures do not alter the fundamental trajectory—massive expansion of electricity and water consumption—but provide the language by which projects are justified in regulatory, political, and financial terms. They are “bridge solutions” that maintain momentum while longer-term investments, such as new transmission lines, are built.
The implications extend beyond Silicon Valley. Across California, PG&E has reported 26 new data center applications requiring 3.5GW of baseload power—equivalent to three nuclear reactors. To stabilize supply, the state has extended the Diablo Canyon nuclear plant and delayed gas plant retirements. In Imperial County, near the Salton Sea, developers propose 500MW data centers drawing on geothermal and solar resources, framed as catalysts for “Lithium Valley.” Yet these facilities still draw heavily on contested water supplies and face local opposition over health risks and ecological strain. What happens in Santa Clara and San Jose is not contained within the Bay Area—it is the front line of a regional and nationwide restructuring of grids, land, and finance around AI.
Map of Santa Clara and San José Digital and Electric Infrastructure. Data sources: Infrapedia, HIFLD.
What distinguishes the current AI bubble is its integration of public utilities into the speculative dynamics of digital capitalism—which I covered in a previous post. In past booms, from the railroads of the 19th century to the dot-com surge of the 1990s, overbuilding was fueled by speculative finance, with the public left to absorb the fallout after collapse. Like today’s cycle, both of those earlier crises were rooted here in Silicon Valley’s backyard. In today’s AI expansion, utilities are direct participants, structuring deals with municipalities and developers to guarantee delivery, investing billions in new infrastructure, and positioning themselves as partners in technological progress. For PG&E, once discredited by wildfires and bankruptcy, the AI boom provides not only new revenue but renewed legitimacy as the indispensable enabler of Silicon Valley’s next phase.
San Jose’s evolution from PG&E adversary to PG&E partner is symptomatic of this new infrastructural order. Where once resilience alluded to decentralization and municipal control, it now means aligning with the investor-owned utility to secure megawatt guarantees for private data centers. Santa Clara’s exhaustion of capacity and San Jose’s embrace of PG&E illustrate the dual pressures. Local utilities face hard ceilings, while larger utilities see “limitless” opportunity. Cities and utilities organize land, water, and energy around the demands of AI infrastructure, justified through fiscal returns and technical fixes, but ultimately driven by the imperatives of speculative growth. The result is a new kind of techno-statecraft—not just via national industrial policy—but emerging through negotiation of utilities, land-use authorities, and corporate demand. This is how the infrastructural core of AI is being built—through deals that fuse public authority to private growth imperatives.
References
Molotch, Harvey L. 1976. “The City as a Growth Machine.” The American Journal of Sociology 82 (2): 309–32.
Peskoe, Ari, and Eliza Martin. 2025. “Extracting Profits from the Public: How Utility Ratepayers Are Paying for Big Tech’s Power.” Harvard Electricity Law Initiative. https://eelp.law.harvard.edu/extracting-profits-from-the-public-how-utility-ratepayers-are-paying-for-big-techs-power/.
