Data centers' hunger for energy could raise all electric bills
Individuals and small businesses have been paying more for power in recent years, and their electricity rates may climb higher still.
That's because the cost of the power plants, transmission lines and other equipment that utilities need to serve data centers, factories and other large users of electricity is likely to be spread to everybody who uses electricity, according to a new report.
The report by Wood MacKenzie, an energy research firm, examined 20 large power users. In almost all of those cases, the firm found, the money that large energy users paid to electric utilities would not be enough to cover the cost of the equipment needed to serve them. The rest of the costs would be borne by other utility customers or the utility itself.
The utilities 'either need to socialize the cost to other ratepayers or absorb that cost -- essentially, their shareholders would take the hit,' said Ben Hertz-Shargel, who is the global head of grid edge research for Wood MacKenzie.
This is not a theoretical dilemma for utilities and the state officials who oversee their operations and approve or reject their rates. Electricity demand is expected to grow substantially over the next several decades as technology companies build large data centers for their artificial intelligence businesses. Electricity demand in some parts of the United States is expected to increase as much as 15% over the next four years after several decades of little or no growth.
The rapid increase in data centers, which use electricity to power computer servers and keep them cool, has strained many utilities. Demand is also growing because of new factories and the greater use of electric cars and electric heating and cooling.
In addition to investing to meet demand, utilities are spending billions of dollars to harden their systems against wildfires, hurricanes, heat waves, winter storms and other extreme weather. Natural disasters, many of which are linked to climate change, have made the United States' aging power grids less reliable.
That spending is one of the main reasons that electricity rates have been rising in recent years.
American homes that use a typical 1,000 kilowatt-hours of electricity a month paid, on average, about $164 in February, according to the Energy Information Administration. That was up more than $30 from five years ago.
Dominion Energy, a large investor-owned utility based in Richmond, Virginia, is one of those that Wood MacKenzie expects will spend more on new infrastructure than it will be able to recover from selling electricity to data centers and other large users. More data centers have opened in Virginia than in any other state.
Asked about Wood MacKenzie's filings, Dominion said that on April 1 it filed a proposal to electricity regulators in Virginia for requiring large-load customers to pay their 'fair share' of utility costs.
'Ensuring a fair allocation of costs and mitigating financial risk are not new concepts to the company,' Edward H. Baine, president of Dominion Energy Virginia, said in testimony that Dominion submitted to state regulators and provided to The New York Times. 'Addressing both the needs and the risks associated with growth in high-load electric customers with high-load factors is both a public policy and a regulatory priority for Virginia.'
A 2024 analysis by Virginia officials concluded that data centers paid the full cost of the service they received. But that report warned that the addition of many more large users of electricity could raise rates for all users if the state did not make policy changes to protect individuals and small businesses.
Wood MacKenzie's report found that some states do have policies to protect individuals and small businesses from higher rates. Chief among them is Texas, where customers can pick a power source that is different from the utility that maintains the lines that deliver electricity to their homes.
This arrangement, according to Wood MacKenzie, helps protect individuals from having to pay for grid upgrades that mainly or entirely benefit large users.
Hertz-Shargel said many utilities also had programs that allowed large electricity users to buy emissions-free energy directly from power producers like solar and wind farms. Such programs, he said, could be refashioned to help ensure that the cost of new power projects is largely or entirely borne by the users responsible for major grid upgrades.
The policies that states and utilities have put in place will significantly reduce risks of spreading the costs of improvements for the large-load customers, but 'they do not provide complete protection,' Hertz-Shargel said. 'Only by removing data-center-caused infrastructure from utilities' books, such as by allowing large loads to contract with third parties for generation via clean transition tariffs, are both ratepayers and utility shareholders fully protected.'
This article originally appeared in The New York Times.
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