The huge demand for electricity from data centers driving the AI boom has fallout for everyday ratepayers. Regulators are concerned.
An Amazon Web Services data center in Ashburn, Virginia, on July 28. (Nathan Howard/Bloomberg/Getty Images)
By Evan Halper and Caroline O’Donovan
Updated November 1, 2024 at 8:02 p.m. EDT|Published November 1, 2024 at 6:00 a.m. EDT
Consumers in some regions of the country are facing higher electric bills due to a boom in tech companies building data centers that guzzle power and force expensive infrastructure upgrades.
Companies such as Google and Amazon have ramped up construction of new data centers as they race to compete in artificial intelligence. The facilities’ extraordinary demand for electricity to power and cool computers inside can drive up the price local utilities pay for energy and require significant improvements to electric grid transmission systems.
As a result, costs have already begun going up for customers — or are about to in the near future, according to utility planning documents and energy industry analysts. Some regulators are concerned that the tech companies aren’t paying their fair share, while leaving customers from homeowners to small businesses on the hook.
In Oregon, electric utilities are warning regulators that consumers need protections from rising rates caused by data centers. From Virginia to Ohio and South Carolina, companies are battling over the extent of their responsibility for increases, attempting to fend off anger from customers. In the Mid-Atlantic, the regional power grid’s energy costs shot up dramatically, and data centers are cited as among the root causes of rate increases of up to 20 percent expected in 2025.
“A lot of governors and local political leaders who wanted economic growth and vitality from these data centers are now realizing it can come at a cost of increased consumer bills,” said Neil Chatterjee, former chair of the Federal Energy Regulatory Commission.
The tech firms and several of the power companies serving them strongly deny they are burdening others. They say higher utility bills are paying for overdue improvements to the power grid that benefit all customers. In some cases, they said in response to criticism from consumer and business advocates that they are committed to covering additional costs.
But regulators — and even some utilities — are growing skeptical.
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The artificial intelligence industry is driving a nationwide data center building boom. These sprawling warehouses of computing infrastructure are creating explosive demand for power, water and other resources. Power Grab investigates the impacts on America and the risks AI infrastructure creates for the environment and the energy transition.
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A jarring example of fallout on consumers is playing out on the Mid-Atlantic regional power grid, called PJM Interconnection, which serves 13 states and D.C. The recent auction to secure power for the grid during periods of extreme weather and high demand resulted in an 800 percent jump in the price that the grid’s member utilities had to pay.
The impact will be felt by millions by the spring, according to public records. Power bills will increase as much as 20 percent for customers of a dozen utilities in Maryland, Ohio, Pennsylvania, New Jersey and West Virginia, regulatory filings show. That includes households in the Baltimore area, where annual bills will increase an average of $192, said Maryland People’s Counsel David Lapp, a state appointee who monitors utilities.
The next auction, in 2025, could be more painful, Lapp said, leaving customers potentially “looking at increases of as much as $40 to $50 a month.”
Other causes — volatile fuel prices, supply chain challenges, extreme weather and rising interest rates — also drive up electricity rates. PJM Interconnection faces supply shortages that have made power more costly. Older power plants are going out of service faster than new generation is coming available. Reliability issues at large gas and coal plants during extreme weather events also drove prices up.
But the sudden, unprecedented demand of data centers, some of which can consume an entire city’s worth of power, compounds the effects of all those problems, experts say.
In Virginia, which has aggressively recruited data center development, new centers alone are projected to increase demand for power up to 50 percent by 2030, according to the consulting firm Aurora Energy Research. Over the next 15 years, the state will need to add electricity supply equal to the amount used by the entire state of New Jersey, Aurora found.
The most recent forecast from Virginia’s biggest utility, Dominion Energy, projects that between now and 2035, residential electricity prices will grow at three times the annual rate they did over the last 16 years. Dominion executives say customer bills in the state are still lower than the national average, and the proposed cost increases for the coming decade are consistent with recent inflation rates.
But the Virginia State Corporation Commission warned in a recent advisory that demand for power from data centers is “creating issues and risks for electric utilities and their customers that have not heretofore been encountered.” The commission, which regulates utilities, will meet Friday to examine potential ratepayer protections.
A ‘power drain’
Advocates cite another source of cost-shifting onto consumers: discounted rates that power companies and local government officials use to entice tech companies to build data centers.
In a bubbling dispute, the South Carolina Small Business Chamber of Commerce is imploring the state’s regulators to rethink discounts and other subsidies government and utility leaders used to draw a Google data center to Dorchester County, in the southeastern part of the state.
“The power drain of companies like Google is enormous,” said Buddy Delaney, whose family has been manufacturing and selling custom mattresses in the Columbia, South Carolina, area for 96 years. “We don’t think small businesses like ours should be subsidizing special electricity rates for these companies that have billions of dollars in revenue.”
Google worked out a deal with Dominion Energy, blessed by regulators, to pay 6 cents per kilowatt hour for its power. That is less than half of what residential customers pay, as well as substantially less than is paid by businesses like Best Mattress, the company Delaney’s grandmother founded 96 years ago. The difference amounts to as much as $1,000 on the Best Mattress monthly power bill.
“Current residential ratepayers are going to pay a lot, lot more because of data centers that bring almost no employees,” Chip Campsen, a Republican South Carolina state senator, said when the Google deal emerged at a legislative hearing in September. “They are going to pay because they have to participate in paying the capital costs for building the generating capacity for these massive users of energy.”
Google’s head of data center energy, Amanda Peterson Corio, said in a statement that the company is “working closely with our utility partners in all the communities where we operate to ensure our growth does not impact existing ratepayers.” She said Google’s energy supply contracts undergo “rigorous review” by utility regulators “to ensure that Google covers the utility’s cost to serve us.”
Dominion said in a statement that its contract with Google “covers the investments required to serve the project, including transmission lines and other facilities,” and it includes “terms to ensure other customers, such as residential and small businesses, do not unfairly incur additional costs.”
In Ohio, tech companies are resisting efforts to force them to pay up front for their energy needs.
The utility AEP Ohio has riled tech companies by seeking from regulators an up-front fee equal to 85 percent of their projected electricity use over a decade. The utility said in a statement that the proposed levy “insulates our other customers — including residents, small businesses, manufacturers and other industries — from the impact of the necessary infrastructure improvements” for data centers.
Tech companies including Google, Meta, Microsoft and Amazon call the proposal unfair and will continue their push for a lower fee at a December hearing. Amazon founder Jeff Bezos owns The Washington Post.
In Pennsylvania, Amazon’s novel plan to fuel a data center from a reactor at the nearby Susquehanna nuclear plant is now in jeopardy, after regulators blocked it Friday. They cited potential impact on consumers as among their concerns.
The plan threatens to leave other ratepayers stuck with a bill of $50 million to $140 million, according to testimony from AEP and utility conglomerate Exelon.
Exelon executive vice president Colette Honorable said the company’s goal is “to make sure each customer is bearing their fair share.” The owner of the plant, Talen Energy, contends the companies fighting the Amazon deal are outdated monopolies slinging “unabashed misrepresentations.”
In other places, the fight is over who should pay to keep fossil fuel plants churning out power as utilities — scrambling to keep up with data center growth — delay retirements.
The Sierra Club, an environmental organization, warns that utility Georgia Power’s plans to extend the life of fossil fuel plants to serve data centers is leaving other customers burdened with a bill of potentially tens of millions of dollars. It points in a regulatory filing to substantial payments required to keep a Mississippi coal plant from shutting down before unfinished data centers start using the power.
“These costs are not getting paid in any way by tech companies, even though the power is getting procured because they might need it later on,” said Devi Glick of Synapse Energy Economics, an author of the Sierra Club filing.
Georgia Power argued in its rebuttal the data center demand is so large, and its potential boost to the state’s economy so lucrative, that the utility must “act now to secure the resources needed.”
On Thursday, a coalition of advocacy groups sent a letter to the National Telecommunications and Information Administration asking Biden to “guarantee that the public and utility ratepayers are not made to subsidize the wealthiest corporations in the world.”
The Biden administration met with data center industry leaders and regulators this year as part of an AI task force. White House spokeswoman Robyn Patterson said officials “made clear to tech and utility companies that the cost of building the necessary infrastructure should not fall on American taxpayers or small businesses.”
Wires run between individual cages at Equinix Data Center in Ashburn, Virginia, on May 9. (Amanda Andrade-Rhoades for The Washington Post)
Kristin Meredith, a retired attorney in Culpeper, Virginia, whose monthly winter electric bill has reached as high as $425, was troubled to learn about a planned $54 million transmission line and substation being built for a nearby Amazon data center. Meredith said she does not want to see her bills soar any higher to pay for infrastructure she believes will benefit only Amazon.
“They are already making money hand over fist, and now they want us to pay for this?” she said.
While Dominion’s regulatory filings indicate Amazon will not be billed for the entire project, the company says it pays its fair share. “We work to make sure that we’re covering those costs and that they aren’t being passed on to other ratepayers,” an email from Amazon spokesman Scott LaBelle said. Both Amazon and Dominion say that fees for infrastructure improvements on data centers protect others from paying their costs. They say that new transmission lines, like the one needed for the Amazon project, benefit all customers.
Dominion CEO Robert Blue said in an interview that the utility has diligently kept rates low even as it helped establish the world’s largest concentration of data centers.
While the questions that ratepayers in the Culpeper area are raising are “absolutely reasonable,” Blue said, there are also bigger issues at play, such as “maintaining the superiority of the United States’ technological advantage as a growth engine for our economy, as essential to our national security.”
In Portland, Oregon, many people are troubled by their rapidly rising electric bills. After a winter storm this year, a record number of residential customers got shut off for missed payments. Many ratepayers blame the Portland utility’s newly proposed rate hikes on the region’s data center boom. Meanwhile, the state’s second largest utility, PacifiCorp, is asking regulators to approve new fees for data centers and other very large customers.
Change can’t come fast enough for Leslie Oglesby, a former mail carrier from Forest Grove, Oregon, who shared her concerns about rate hikes in a public comment filed with the state’s regulator.
“This increase is not a good solution to seniors living on fixed incomes,” she wrote in an August comment. “They are having to make decisions on heat or cooling. Stop giving discounts to business. Stop the building of these massive data centers.”