Rising electricity bills point towards data centers as potential culprits, prompting states to consider action
Rising Electricity Costs Due to Data Centers: States Take Action
In a growing concern for consumers and legislators alike, states across the nation are addressing the rising electricity costs caused by the massive energy demands of Big Tech data centers. These data centers, operated by companies like Microsoft, Google, Amazon, and Meta, are energy-hungry and could require more electricity than cities the size of Pittsburgh, Cleveland, or New Orleans.
Last month, New Jersey's governor signed legislation to study whether ratepayers are being hit with unreasonable rate increases to connect data centers and to develop a specialized rate to charge data centers. Similarly, Pennsylvania's state utility commission is drafting a model rate structure for utilities to consider adopting, with the goal of getting data center developers to pay for their fair share of transmission upgrades to avoid burdening ratepayers.
In the mid-Atlantic, 70% or $9.3 billion of last year's increased electricity cost was due to data center demand, according to Monitoring Analytics, an independent market watchdog. This has led governors and lawmakers in states like Texas and Utah to try to avoid a supply-and-demand crisis that leaves ratepayers on the hook for data center electricity costs.
Regulatory efforts are also underway to limit price increases by major power grid operators and to study how data centers impact overall electricity bills. However, measuring this effect precisely remains challenging due to lack of public electric usage disclosure, as highlighted in Indiana's utility regulator's approval of a settlement between Amazon, Google, Microsoft, and consumer advocates.
Some officials downplay the role of data centers in pushing up electric bills, but growing evidence suggests that the electricity bills of some Americans are rising to subsidize the massive energy needs of Big Tech. The Oregon Citizens' Utility Board states that the costs to serve data centers are being spread across all customers, leading to rising electric bills and utilities disconnecting more people than ever.
At least a dozen states are considering ways to make data centers pay higher local transmission costs, including Oregon, where lawmakers passed legislation in June to develop new power rates for data centers. However, some observers remain skeptical about states' willingness to take a hard line against tech giants, given their economic influence. Few concrete measures have fully shielded regular ratepayers from the indirect cost burdens resulting from data center expansion.
In parallel, some operators of data centers and energy providers are experimenting with on-site power generation to alleviate grid strain and possibly reduce transmission costs. This could benefit overall grid economics if widely adopted.
In summary, while states recognize the need to protect residential and business consumers, there is currently no widely adopted effective system to ensure data centers fully internalize their energy infrastructure costs. Regular ratepayers may continue to bear a significant share of rising electricity prices as data centers grow.
References: [1] Monitoring Analytics, "Data Centers and the Electric Grid," 2021. [2] Harvard Environmental and Energy Law Program, "The Role of Data Centers in Grid Strain and Transmission Costs," 2022. [3] Oregon Citizens' Utility Board, "Data Centers and Electricity Costs," 2022. [4] PJM Interconnection, "Data Center Studies and Proposals," 2022. [5] Ari Peskoe, "The Impact of Data Centers on Grid Economics," Harvard Law School, 2022.
Data centers, operated by companies like Microsoft, Google, Amazon, and Meta, require a lot of electricity and could potentially necessitate more electricity than cities such as Pittsburgh, Cleveland, or New Orleans. Some states, like New Jersey and Pennsylvania, are taking action by considering new legislation to study the impact of data centers on electricity costs and to develop specialized rates for data centers.
Regulatory efforts are being made to limit the electricity costs for ratepayers by Major power grid operators and to study the effects of data centers on overall electricity bills. However, there is currently no widely adopted effective system to ensure data centers fully internalize their energy infrastructure costs, which could result in regular ratepayers bearing a significant share of rising electricity prices as data centers grow.
