Data Centers are Increasing Utility Rates—What are States Doing About it?
By Daniela Ricardo

Data Centers are Increasing Electricity Consumption and Everyone Else is Paying For It
Utility bills are rising because of data centers.[1] Residential rates are up 6.6% since 2023.[2] Additionally, more than 100 utilities have either raised or proposed higher rates for a total increase of 67 billion dollars.[3] These rising prices are due to increased demand,[4] namely from data centers.[5] In 2023, 4.4% of the electricity consumed in the United States was consumed by data centers.[6] This percentage is only projected to increase.[7] Data centers increase utility rates because they require expensive updates to the grid, which existing ratemaking allows to be shifted to residential consumers.[8]

Residential consumers end up paying for part of data centers’ electricity consumption in addition to paying for data centers’ infrastructure needs. To understand how residential consumers end up paying for data centers’ power consumption, understanding utility ratemaking is essential. Utilities are monopolies.[9] Most are investor-owned and for-profit.[10] Because electricity is an essential service and the industry is shielded from competition, utilities must be regulated.[11] Public utility commissions (PUCs) make sure utilities charge justifiable rates through rate cases.[12] PUCs use the “cost causation” principle to examine whether consumer rates correspond to the costs utilities incur in providing electricity to like consumers.[13] Utilities propose their preferred rates based on their own analyses and records.[14] Part of this proposal includes dividing the cost of operating expenses and profit among customers with similar infrastructure requirements.[15] These groups are called “ratepayer classes.”[16] For each ratepayer class, utilities propose different tariffs to standardize what they pay.[17] Because the cost-causation principle is flexible, all ratepayers can be made to pay for all transmission costs.[18]

Traditional cost distribution shifts the cost of updating the grid for data centers onto residential consumers.[19] The increase in electricity demand requires high-voltage transmission infrastructure.[20] Residential consumers, however, require low-voltage systems.[21] Therefore, data centers require transmission that residential consumers do not require.[22] However, utility-planned transmission is paid for by the customers within their territory.[23] Because the Federal Energy Regulatory Commission (FERC) does not require utilities to keep transmission connection costs separate from other transmission costs, utilities do not differentiate the costs incurred from data centers from that of other consumers.[24] Hence, all consumers within a utility territory pay for all transmission costs regardless of whether they benefit from it.[25]

PJM Interconnection, a regional transmission organization (RTO) monitoring utilities in thirteen states and the District of Colombia, exemplifies how traditional cost distribution has operated in the modern sphere.[26] In 2023, PJM approved a $5.1 billion cost-share plan for transmission costs.[27] PJM assigns transmission costs based on each utilities’ share of power demand and share of benefits.[28] When PJM allocates costs to each PUC, each PUC allocates costs based on ratepayer classes.[29] Over half of the cost incurred in this case was attributed to Virginia’s data centers.[30] Ratepayers in other states argued that they should not be made to pay for transmission when Virginia alone would realize the economic benefits.[31] Because it is presumed that all ratepayers benefit from transmission proportional to their energy consumption, FERC dismissed the economic benefit argument,[32] and approved the plan.[33] In Maryland and Virginia, residential ratepayers paid for more than half of the transmission costs.[34] Unless utilities require data centers to pay for transmission up-front, residential ratepayers will end up paying for it.

When utilities do not make data centers pay for transmission costs up front, they run the risk of building unnecessary transmission.[35] Ratepayers could be on the hook for transmission costs even when a data center does not connect to the grid.[36] Utilities build transmission anticipating the large load, but when it does not come ratepayers still have to pay for it.[37] Most data centers do not pay for transmission up-front.[38] Instead, they sign contracts with utilities behind closed doors.[39]

Traditional ratemaking allows data centers and utilities to shift costs onto residential consumers through special contracts or favorable tariffs. Because data centers are large consumers, they negotiate with utilities directly.[40] Utilities offer data centers lower rates to entice them into building in that utility’s service area.[41] As opposed to ratemaking, these private contracts have little opportunity for public participation and review.[42] The process is not transparent and is isolated from other ratepayers.[43] Furthermore, these contracts incentivize utilities to increase rates for residential consumers in the next ratemaking case.[44] Utility tariffs can function similarly. For example, Florida Power and Light (FPL) recently proposed a rate hike of $10 billion.[45] In a revised settlement, FPL walked back plans to create a new tariff for data centers which would have required data centers to pay 65% higher rates.[46] Instead, data centers under a certain size would save 50% off their base bills.[47] The increase in residential rates directly contrasts data centers’ savings.[48]

Are State Laws Protecting Residential Ratepayers?
Several states have sought to address a major risk data centers pose to ratepayers—building too much transmission. In Ohio, data centers must pay penalties if they commit to using a certain amount of electricity and do not do so.[49] Data centers must pay 85% of the capacity they committed to for twelve years unless they give three years’ notice.[50] In Virginia, Dominion Energy has proposed both a rate increase and an exit fee for large load consumers.[51] It would require large load consumers to sign a fourteen-year contract.[52] If they withdraw early or do not build the facility, the consumer will still have to pay for their proposed energy costs.[53] Additionally, the consumer would have to pay a certain percentage of demand charges for transmission, distribution, and generation.[54] Oregon’s Power Act creates a new rate class for large energy users.[55] Oregon requires large energy users to sign contracts for at least ten years.[56] Large energy users are also required to pay for a minimum amount of energy and an extra fee if they exceed the maximum amount of energy projected.[57] To address potential burdens on residential ratepayers, Texas takes a slightly different approach.[58] Texas requires large energy users to pay for infrastructure costs.[59] It also requires large energy users to disconnect during emergencies and register backup generators.[60] In California, a new law requires the California Public Utilities Commission to conduct a study on the effects of data centers on ratepayers.[61]

While state-level legislation is progressing, the trend towards penalizing data centers falling short of commitments does not address major issues in traditional ratemaking. Unless data centers pay for transmission costs up-front, residential ratepayers will foot the bill. Furthermore, states with a lot of data centers are incentivized not to require data centers to pay for transmission upgrades up-front under current cost distribution methods.[62] If the RTO a state is in apportions costs by energy consumption among all states in the region, the state incurring those costs benefits the most. If that state required data centers to pay for transmission costs up-front, data centers would look elsewhere. On the other hand, requiring a data center to pay for energy it committed to using simply makes sure a utility gets paid. Either way, residential ratepayers are still on the hook for the cost of connecting data centers to the grid. Texas’ law requiring data centers to pay for costs up-front addresses this issue. Another way of addressing this issue would be changing how the cost causation principle works. If residential ratepayers are not using it, they should not pay for it.

[1] See, e.g., Marc Levy, As electric bills rise, evidence mounts that data centers share the blame, NBC Bay Area (Aug. 11, 2025, 7:13 AM) https://www.nbcbayarea.com/news/national-international/electric-bills-rise-data-centers/3931622/ (noting that 70% of last year’s increase in electricity cost was due to data center demand); see also Emma Penrod, Residential electricity rates up 6.6% over last year as gas prices rise, Utility Dive (Sept. 19, 2025), https://www.utilitydive.com/news/electricity-rates-bills-affordability-cap/759977/ (suggesting that increased demand and rising natural gas prices may be why utilities are proposing rate increases).

[2] Penrod, supra note 1.

[3] Id.

[4] Dan Gearino, Which States Are Getting Hit Hardest by Electricity Price Increases?, Inside Climate News (Sept. 25, 2025) https://insideclimatenews.org/news/25092025/inside-clean-energy-electricity-rate-hikes-by-state/.

[5] Id.

[6] Rachel Reed, How data centers may lead to higher electricity bills, Harv. L. Today (Sept. 3, 2025) https://hls.harvard.edu/today/how-data-centers-may-lead-to-higher-electricity-bills/.

[7]E.g., Lalit Batra, et al., Rising Current: America’s growing electricity demand 4 (2025), https://www.icf.com/-/media/files/icf/reports/2025/energy-demand-report-icf-2025_report.pdf?rev=c87f111ab97f481a8fe3d3148a372f7f (finding that U.S. electricity demand may grow by 25% by 2030 and 78% by 2050).

[8] E.g., Ivan Penn & Karen Weise, Big Tech’s A.I. Data Centers Are Driving Up Electricity Bills For Everyone, N.Y. Times (Aug. 14, 2024), https://www.nytimes.com/2025/08/14/business/energy-environment/ai-data-centers-electricity-costs.html (“recent reports expect data centers will require expensive upgrades to the electric grid, a cost that will be shared with residents”); see Levy, supra note 1 (“[U]nless utilities negotiate higher specialized rates, other ratepayer classes . . . are likely paying for data center power needs”).

[9] Eliza Martin & Ari Peskoe, Extracting Profits from the Public: How Utility Ratepayers Are Paying for Big Tech’s Power, Harv. Elec. L. Initiative 6 (2025), https://eelp.law.harvard.edu/wp-content/uploads/2025/03/Harvard-ELI-Extracting-Profits-from-the-Public.pdf.

[10] Id.

[11] Id.

[12] Id.

[13] Id.

[14] Id. at 7 (explaining that a utility’s preferred rate includes a “revenue requirement” to earn a profit and cover operating expenses).

[15] Id.

[16] Id.

[17] Id.

[18] Id. at 15.

[19] Union of Concerned Scientists, Connection Costs: Loophole Costs Customers Over $4 Billion to Connect Data Centers to Power Grid 2 (2025), https://www.ucs.org/sites/default/files/2025-09/PJM%20Data%20Center%20Issue%20Brief%20-%20Sep%202025.pdf; Martin & Peskoe, supra note 9 at 15.

[20] Union of Concerned Scientists, supra note 19.

[21] Id.

[22] See id. (noting that residential consumers only require low-voltage transmission).

[23] Id.

[24] Id. at 6.

[25] Id. at 4.

[26] Territory Served, PJM  https://www.pjm.com/about-pjm/who-we-are/territory-served (last visited Oct. 14, 2025).

[27] Ethan Howland, FERC approves PJM’s $5.1B cost-share plan for transmission to be built by Dominion, others, Utility Dive (Apr. 10, 2024) [hereinafter FERC approves PJM plan], https://www.utilitydive.com/news/ferc-pjm-cost-allocation-transmission-rtep-maryland-virginia/712768/.

[28] Martin & Peskoe, supra note 9 at 15 (explaining that PJM assigns transmission costs based on each utilities’ share of power demand and share of benefits).

[29] Id.

[30] Ethan Howland, Customers in 7 PJM states paid $4.4B for data center transmission in 2024: report, Utility Dive (Oct. 1, 2025) [hereinafter Customers paid $4.4B in 7 PJM states], https://www.utilitydive.com/news/pjm-data-center-transmission-costs-ratepayers/761579/.

[31] Ethan Howland, Maryland ratepayer advocate urges FERC to reject PJM’s $5.1B transmission cost allocation plan, Utility Dive (Feb. 14, 2024) [hereinafter Maryland urges FERC to reject PJM plan], https://www.utilitydive.com/news/maryland-ratepayer-advocate-ferc-pjm-rtep-transmissision-cost-virginia-data-center/707338/.

[32] Customers paid $4.4B in 7 PJM states, supra note 30.

[33] Id.; Martin & Peskoe, supra note 9 at 16.

[34] Id.

[35] Id. at 17.

[36] Martin & Peskoe, supra note 9 at 17.

[37] Id.

[38] Union of Concerned Scientists, supra note 19 at 5 (explaining that only large load customers paid for transmission connection costs up-front or directly in only 5% of cases in 2024).

[39] Reed, supra note 6.

[40] Martin & Peskoe, supra note 9 at 12.

[41] Id. at 13.

[42] Id.

[43] Id.

[44] Id. (describing a FERC audit’s discovery of Duke Energy’s plan to “shift the cost of the discount” of a data center to other ratepayers by raising their rates).

[45] Shelby Green, Key decisions loom in Florida Power and Light’s historic bid to raise rates by $10 billion, Energy & Pol’y Inst. (Sept. 15, 2025), https://energyandpolicy.org/key-decisions-loom-in-fpl-historic-bid-to-raise-rates/#h-florida-power-and-light-proposes-to-shift-significant-costs-onto-everyday-floridians (explaining that FPL changed their bid last-minute from $10 billion increase to a $6.9 billion increase).

[46] Id.

[47] Id.

[48] Id.

[49] Dan Gearino, Consumers (and a Utility) Get a Win in Ohio, While Data Centers Take the Loss, Inside Climate News (July 17, 2025), https://insideclimatenews.org/news/17072025/inside-clean-energy-ohio-data-centers-penalties/.

[50] Id.

[51] Shannon Heckt, Dominion proposes higher utility rates, new rate class for data centers, Va. Mercury (Sept. 3, 2025, 11:20 AM),  https://virginiamercury.com/2025/09/03/dominion-proposes-higher-utility-rates-new-rate-class-for-data-centers/.

[52] Id.

[53] Id.

[54] Id.

[55] H.D. 3546, 83d Leg. Assemb., Reg. Sess. (Or. 2025); Or. Legislature, Power Act: Protecting Oregonians With Energy Responsibility (2025), https://www.oregonlegislature.gov/marsh/Documents/POWER-Act_One-Pager_3-5-25.pdf?utm_.com.

[56] Id.

[57] Id.

[58] S.B. 6, 89th Leg., Reg. Sess. (Tex. 2025); David Chernicoff, Texas Senate Bill 6: A Bellwether On How States May Approach Data Center Energy Use, Data Center Frontier (July 2, 2025), https://www.datacenterfrontier.com/energy/article/55298872/texas-senate-bill-6-a-bellwether-on-how-states-may-approach-data-center-energy-use.

[59] Id.

[60] Id.

[61] S.B. 57, 2025-2026 Leg., Reg. Sess. (Ca. 2025).

[62]  Martin & Peskoe, supra note 9 at 17.