Growing use of Artificial Intelligence (AI) and cloud computing corresponds to an increasing need to develop data centers, many of which must use water to cool servers, to control humidity, and for other purposes. These water requirements have potential to cause conflicts, administrative challenges, and litigation in regions where water is scarce. The proposed RB Inyokern Data Center in Kern County, California, sheds light on the environmental review process for data centers and the broader debate over water use and AI.
The RB Inyokern Data Center
The proposed data center would include 40 diesel-fired generator sets to provide up to 99 megawatts (MW) of backup emergency generation to support on-site data operations during utility outages. According to a Water and Sewer Service “Will Serve” letter issued by the Inyokern Community Services District to the entity that wants to build the center, the center would use approximately 40,430 gallons of water per day for various purposes. The center is set to be built within the Indian Wells Valley groundwater basin. That basin is in overdraft and the subject of an ongoing adjudication of rights in the Orange County Superior Court.
California Energy Commission’s (CEC) Environmental Review
The CEC has the exclusive authority to certify thermal generating facilities 50 MW and larger. Project sponsors for facilities over 100 MW must complete the CEC’s Application for Certification (AFC) process, which includes public outreach, an evidentiary hearing, and a final vote and decision by the five-member CEC. The AFC process is a certified regulatory program that is “functionally equivalent” to the environmental impact report process under the California Environmental Quality Act (CEQA). The CEC has a continuing duty after licensing to monitor compliance of the facility with conditions of the certification, as well as with all federal, state, and local laws.
However, project sponsors for facilities under 100 MW may seek exemption from the AFC process through the Small Power Plant Exemption (SPPE) program. The CEC may grant an SPPE if, after a review under CEQA and Title 20 of the California Code of Regulations, the CEC finds that a proposed facility under 100 MW will not create a substantial adverse impact on the environment or energy resources. Thereafter, the project developer must secure local, state, and federal permits before constructing and operating the project.
As explained below, the CEC is actively considering whether the RB Inyokern Data Center qualifies for the SPPE program.
The Growing Dispute
In late April and early May, the RB Inyokern Data Center project developer filed an application for an SPPE, claiming that the planned data center is 99 MW—just under the 100 MW threshold for SPPE to apply. The CEC is accepting public comments on the SPPE application, and, as of the date of this policy alert, over 150 comments have been submitted. The public comments received thus far reveal a diversity of views, including, among other topics: (1) whether the center will create a substantial adverse impact on water resources; and (2) whether and how the project may create economic opportunities in the Inyokern area. For example, one project opponent states:
“I understand from local and county reporting that the proposed data center would use as much as about 16 million gallons of water annually. This is equivalent to a little over 50 AFY as an additional impact on the groundwater management plan. While this may seem like a small amount by comparison, the fact is that any increase in groundwater use will have a substantial adverse impact on the groundwater management plan and ability of the groundwater authority to accomplish its legal mandate.”
On the other hand, a project proponent contends that the proposed data center “represents an opportunity to attract new business activity, employment opportunities, infrastructure improvements, and additional economic stability to the area.”
Meanwhile, the CEC on May 15, 2026, denied an April 27, 2026 Application for Confidential Designation that would have shielded the Inyokern Community Services District’s Will Serve letter to support the data center from public disclosure. The letter is now a matter of public record.
Why Stakeholders Should Monitor the CEC’s Docket
There are over 200 data centers in California, and this number is expected to rapidly increase in response to growing demand. The CEC’s AFC and SPPE processes provide the agency with an important role in evaluating the environmental impacts associated with data center development, including impacts to water resources. The public comments received by the CEC on the RB Inyokern Data Center provide just one example of community interest in the environmental review of these potentially significant impacts.
If the CEC, acting as the lead agency under CEQA, finds that the RB Inyokern Data Center will not create a substantial adverse impact on the environment or energy resources, the data center will qualify for the SPPE, evading the heightened environmental review provided for in the AFC process and the subsequent monitoring by the CEC after construction and operation.
Given the rapid expansion of data centers and their potential environmental impacts, particularly on water use, stakeholders should remain attentive to the CEC’s review process.
The CEC’s docket for the Inyokern matter is here:
For questions regarding the CEC’s environmental review process, please contact:
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