Following years of conflict over energy reliability, the City of San Jose and PG&E have announced a new partnership aimed at ensuring the city can support large-scale power users. The agreement is designed to make San Jose a more attractive location for investment, expand the tax base, and ultimately lower utility bills for residents.
The deal resolves escalating frustrations that had previously led city leaders to explore creating a municipal utility. Under the new framework, PG&E has committed to significant infrastructure and service speed improvements. However, San Jose retains the right to pursue a public utility if the company fails to meet its obligations.
This landmark agreement establishes binding performance metrics for the first 10 priority development projects in the Edenvale, North San Jose, and downtown areas. These projects, which include Westbank’s net-zero data center and housing development, represent 880 megawatts (MW) of new demand—equivalent to roughly 80% of the city’s current energy consumption. Ultimately, PG&E’s grid upgrades will support 2,000 MW of new power demand.
“What I’ve wanted to explore since taking office is a reset of our relationship with PG&E,” said Mayor Matt Mahan. He described the agreement as a “first of its kind” that “creates a binding performance obligation related to speed and certainty of power for large load customers,” such as R&D facilities, manufacturing plants, and data centers.
The reliability of connecting to the power grid, known as “energization,” had become a major barrier to development, compounding the challenges of high land and construction costs. Friday’s announcement is considered crucial for San Jose’s ambition to become a premier data center hub. Bob Staedler, a land-use consultant, called the agreement a “huge milestone,” noting that developers face sizable upfront costs. “Getting these commitments could speed up San Jose’s economic prosperity tenfold,” he said.
To meet the city’s growing power needs, PG&E plans to invest $2.6 billion in expanding infrastructure and upgrading existing facilities, including substations near Diridon Station and at the intersection of Coleman Avenue and Santa Teresa Street. Supporting these efforts, utility developer LS Power is constructing two major high-voltage transmission lines through the area.
“This historic agreement means San Jose is open for business,” said PG&E CEO Patti Poppe. “It means our tech companies can thrive here, grow here and continue to invest here, which is good for everybody.” She added that the new revenue from large tech clients will fund grid modernization, making the system more reliable and affordable for all customers.
For residents, the deal promises significant benefits. A single 99 MW data center could generate $3.5 million to $6.4 million in annual revenue for the city’s general fund, which supports essential services like public safety and road maintenance. Furthermore, PG&E estimates that adding one gigawatt of new load could lower residential bills by 1-2%, as it helps offset the costs of an electrical grid that is currently underutilized.
As part of the agreement, PG&E will fund six new positions within the city’s public works and economic development departments—a commitment of nearly $2 million—to streamline collaboration and project delivery. The utility will also provide 250 MW of electrical capacity for the initial development phase of the Regional Wastewater Facility’s economic lands.
The agreement includes a critical accountability clause: PG&E has six months to remedy any failure to meet its obligations. If issues are not resolved, San Jose can terminate the agreement and once again explore establishing its own municipal utility. “If the utility can’t deliver,” Mahan stated, “we will go back to pursuing a municipal utility.”
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