Are Data Centers Raising America's Electricity Prices?

Residential utility bills in America 'rose 6% on average nationwide in August compared with the same period in the previous year,' reports CNBC, citing statistics from the U.S. Energy Information Administration:

The reasons for price increases are often complex and vary by region. But in at least three states with high concentrations of data centers, electric bills climbed much faster than the national average during that period. Prices, for example, surged by 13% in Virginia, 16% in Illinois and 12% in Ohio.

The tech companies and AI labs are building data centers that consume a gigawatt or more of electricity in some cases, equivalent to more than 800,000 homes, the size of a city essentially... 'The techlash is real,' said Abraham Silverman, who served as general counsel for New Jersey's public utility board from 2019 until 2023 under outgoing Democratic Gov. Phil Murphy. 'Data centers aren't always great neighbors,' said Silverman, now a researcher at Johns Hopkins University. 'They tend to be loud, they can be dirty and there's a number of communities, particularly in places with really high concentrations of data centers, that just don't want more data centers...' [C]apacity prices get passed down to consumers in their utility bills, Silverman said. The data center load in PJM [America's largest grid, serving 13 states] is also impacting prices in states that are not industry leaders such as New Jersey, where prices jumped about 20% year over year...

There are other reasons for rising electricity prices, Silverman said. The aging electric grid needs upgrades at a time of broad inflation and the cost of building new transmission lines has gone up by double digits, he said. The utilities also point to rising demand from the expansion of domestic manufacturing and the broader electrification of the economy, such as electric vehicles and the adoption of electric heat pumps in some regions...

In other states, however, the relationship between rising electricity prices and data centers is less clear. Texas, for example, is second only to Virginia with more than 400 data centers. But prices in the Lone Star state increased about 4% year over year in August, lower than the national average. Texas operates its own grid, ERCOT, with a relatively fast process that can connect new electric supply to the grid in around three years, according to a February 2024 report from the Brattle Group. California, meanwhile, has the third most data centers in the nation and the second highest residential electricity prices, nearly 80% above the national average. But prices in the Golden State increased about 1% in August 2024 over the prior year period, far below the average hike nationwide. One of the reasons California's electricity rates are so much higher than most of the country is the costs associated with preventing wildfires.

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