Is your electric bill going up? AI is partly to blame

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What's the item?
Electricity

How has the price changed since before the pandemic?
Electricity prices have jumped 40% since February 2020, according to the Bureau of Labor Statistics. That's a bigger jump than the 26% increase in the overall cost of living.

Why have prices gone up?
Demand for electricity has increased in recent years, partly because of all of the new data centers that are popping up to serve the artificial intelligence boom. Some old power plants have been retired, and utilities are scrambling to add new electric generation, while also making the power grid more resilient. Also, the price of natural gas used to generate electricity has increased.

Now that fall is here, Kathy Letourneau no longer has to run her air conditioner around the clock. But the Fort Walton Beach, Fla., resident also relies on electric heat to stay warm in the winter. Letourneau, who is 71, says her power bills run between $200 and $300 a month, all year round.

"When you're living on a fixed income, you feel it," she says. "There have been a few times we couldn't afford it. We've had our lights turned off before."

Residential electric rates in Florida have jumped more than 13% over the last year, according to the Energy Department. Letourneau and her husband are bracing for another increase next year.

"Florida is a lot of retired people on Social Security," Letourneau says. "I mean, it's hard."

Across the country, residential electric rates are climbing twice as fast as the overall rate of inflation. The high price of power became a flash point in this week's elections in both New Jersey and Virginia.

The rising costs are partly driven by the price of natural gas, used to generate electricity. Natural gas prices fluctuate with the weather and with the level of gas exports, which have been climbing.

Electricity demand has also soared

Electric bills are also going up because of increased power demand.

For the first two decades of this century, demand for electricity barely budged. But in the last few years, people and businesses have been plugging in more and more. The Energy Department expects demand to grow 2.2% this year and 2.4% next year.

"There's automobiles that have gone from gasoline-powered to electric vehicles," says Drew Maloney, president of the Edison Electric Institute, which represents power companies around the country. "You're also seeing stoves being replaced from gas to electric. And the AI data center growth."

Utilities are hustling to meet that demand by replacing old power plants that have gone out of service while adding new generating capacity from wind, solar, and natural gas.

"We support developing all energy sources," Maloney says. "We need as many electrons on the grid as possible to help keep the grid reliable and costs low."

Who pays for the electricity needed for AI?

Utilities say building new power supplies along with a more resilient electric grid will cost more than a trillion dollars over the next five years. The question facing regulators is, who's going to pay for that.

In theory, the new data centers springing up to support the artificial intelligence boom should cover their own power costs and at least a bit more, potentially lowering bills for nearby residential customers.

"That doesn't seem that hard to do," says Severin Borenstein, faculty director of the Energy Institute at U.C. Berkeley's Haas School of Business. "But you'd be surprised how many politicians and regulators say, 'Well, this is an economic development opportunity. We should give them a great rate.' And in their enthusiasm, they'll end up charging rates that don't even cover the incremental cost."

If data centers are given a break on prices, residential customers could end up saddled with some of their costs. Across the country, residential customers typically pay higher rates than commercial or industrial power users, according to the Energy Department.

There are ways to reduce the nation's overall power bill, by adjusting when and where electricity is consumed. By far, the most expensive time to use power is when demand is at its peak — typically on the hottest days of summer when air conditioners are working hardest.

"If you could get these data centers to get off the grid, say 50-60 hours a year, they really wouldn't create any cost pressure at all," Borenstein says.

Data centers could do that by temporarily switching to backup power, or re-routing their data traffic to cooler parts of the country. Borenstein suggests regulators could require that. Electric vehicle owners also have considerable flexibility in deciding when to plug in and charge.

While demand for electricity is growing faster now than it was a few years ago, that increase is hardly unprecedented. Borenstein says electric demand grew more than twice as fast in the 1960s. That's when air conditioning was going mainstream, making it comfortable for retirees like Letourneau to live in places like Florida.
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