PBS Newshour, October 29, 2025:
Ryan Hledik, Principal, The Brattle Group:
I think the important thing to understand about the power sector is, a big portion of the cost that you’re paying in your electricity bill is a fixed cost. It’s the poles and wires and power plants and substations that power companies have already gone out and invested in. And they’re recovering those costs from you based on how much you and your neighbors and other customers are consuming, how much electricity you’re consuming.
And so if utilities can bring in a new large customer like a data center that’s going to consume a lot of energy, if they can do that without needing to make big additional investments in infrastructure because they already have capacity on their system to accommodate that new customer, it actually can bring more energy into the system that you can spread those fixed costs out across, and that can actually have downward pressure on rates.
Where electric rates have gone up, it is sometimes because Utilities have taken the route of “we’ve always done it this way” – and just built more capacity which gets added to the rate base, and customer’s bills.
There are other choices.
The first link here is to a Reuters piece that deserves to be read in entirety, I include only an excerpt here, but definitely go to the link.
NEW YORK, June 29 (Reuters) – Data centers are being blamed for America’s rising electric bills. But the real issue is not that AI — and consumers in general — are boosting energy usage. The real problem is structural, opens new tab, and it began long before the latest infrastructure boom.
Average residential electricity rates rose 6% last year — more than twice the inflation rate. Roughly one-third of American households now spend more than 5% of their income on electricity.
In 2025, rate increase requests filed by investor-owned utilities hit their highest level since the mid-1980s. Something is clearly broken.
These increases are often attributed to new demand from data centers powering the AI race and other industries turning toward electrification.
But in several states that have welcomed enormous data centers and vast new industrial facilities, including Nebraska, New Mexico and North Dakota, residents’ electricity bills have actually decreased.
Meanwhile, households across the Mid-Atlantic, California, the Northeast and the Southeast — areas that have seen far less data center growth — are watching their power costs climb well above the rate of inflation, according to two studies by the Columbia University Center on Global Energy Policy (CGEP).
So why is demand growth lowering bills in some places and raising them in others?
Two words: poor incentives.
Data centers themselves can also be part of the solution. Pilot projects in Arizona and North Carolina have shown that data centers can be designed to avoid drawing power from the grid during periods of high demand.
..data centers – and other new large energy-hungry infrastructure – could also bear a fair share of the energy costs they trigger, instead of passing those costs to residential ratepayers.
The states where electricity prices are falling despite increased demand from data centers have not discovered magic. They have managed supply, infrastructure and cost allocation sensibly. Prices rise when those things are mismanaged. They do not have to.
Building additional infrastructure for these peak moments is good for utilities’ bottom line, but it increases rates for customers. To lower costs, utilities can use batteries to tap into the grid’s unused capacity. Locating solar panels, fuel cells and geothermal energy close to consumers can often be cheaper than traditional solutions, avoiding costly upgrades to the distribution system.
Any company that is paid based on its capital expenditures will spend more capital. Electricity rates will continue to skyrocket if utilities are rewarded for building infrastructure to satisfy peak demand instead of finding cheaper alternatives. Changing the financial incentives for utilities would push them to use existing capacity more efficiently.
In 2016, years before the data center build-out, Consolidated Edison of New York planned to spend $1.2 billion on new substations to satisfy expected demand in Brooklyn and Queens. In response to state clean energy priorities, the utility solicited non-wires solutions — or alternatives to traditional infrastructure upgrades — from outside energy providers to keep prices down.
The providers submitted a wide range of proposals: distributed solar (power generation near where it would be consumed), demand responseprograms (rebates to customers who use less power in peak periods), battery storage and energy-efficiency projects. They cost $200 million in total, saving customers more than $1 billion. Solutions like these can reduce energy costs, improve grid resilience and reduce carbon emissions.
More than 20 states now require non-wires solution analysis when planning electricity distribution. Utilities understandably aren’t excited about these alternatives, which don’t involve large capital outlays. But states can provide utilities with a financial incentive by changing regulations to allow utilities to keep a portion of the cost savings.