Data Center Power Demands Are Contributing to Higher Energy Bills

Key Takeaways:

• As data centers expand nationwide, utilities are receiving hundreds of gigawatts in interconnection requests, necessitating significant infrastructure investments.
• Natural gas power plants are being built and existing coal power plants are being propped up to meet the surging demand from data centers.
• Electricity bills are spiking for many households, contributing to an affordability crisis, particularly for the most vulnerable communities.

As data centers expand nationwide, utilities are receiving hundreds of gigawatts in interconnection requests, with implications for the power grid and consumers. Dozens of utilities received data center requests for at least 700 gigawatts (GW) of power connection development in 2025, which is more than the 477 GW in electricity that the United States consumed in all of 2023. Even though many of these projects will never be built, the requests are still leading to a ramp-up in energy infrastructure investments, including generation facilities, transmission lines, and transformers. 

Utilities make decisions about building or purchasing new power in a complicated ecosystem of independent system operators (ISOs), state energy regulators, and local regulations. Electric utilities are the first to receive load-interconnection applications (or applications to connect to the grid) for proposed data centers within their service territories. Regulated investor-owned utilities are obligated to serve interconnection requests within their service territory, as set out in the “obligation to serve” or “duty to serve” legal principle. All types of utilities—regulated and non-regulated—must balance these power requests against current generation capacity, future demand projections, and reliability concerns. State energy regulatory entities (i.e., public utility commissions) approve requests from regulated utilities to increase energy rates to cover upfront investments in building new power plants, transmission lines, and related infrastructure, such as transformers. Non-regulated utilities can adjust their rates without seeking approval.

An Affordability Crisis Is Brewing

To cover the investments needed to accommodate the surge in interconnection requests, many utilities are passing on the costs to their consumers through higher monthly utility bills. Utilities requested more than $29 billion in rate increases in the first half of 2025, double the amount requested in the first half of 2024. Electric rate increases were expected to affect 40 million customers nationwide last year. This is in addition to the rate increases granted by state energy commissions over the previous couple of years.

Before 2019, electricity prices had been flat at around 13 cents per kilowatt-hour (kWh) for more than a decade—in part thanks to energy efficiency policies that reduced energy consumption as the overall domestic economy grew. By the end of 2025, however, average electricity prices in the United States increased to 19 cents per kWh, about 27% more than in 2019. In states with a high concentration of data centers like Virginia, electricity prices have increased by up to 267% over the last five years. Such spikes are due to utilities needing to quickly deploy infrastructure, such as power lines and transformers, and pay extra for market-rate energy. 

Electricity prices are not expected to decrease anytime soon. According to the U.S. Energy Information Administration, residential electricity prices rose by 11.5% in 2025, outpacing inflation. Looking further ahead, prices are expected to increase by up to 40% by 2030 compared to 2025. 

The Cost of Reviving Coal

Some coal plant retirements are being delayed to meet the increased demand from data centers, often at the behest of the Trump Administration. But these delays can be costly because most facilities were built in the 1970s and 1980s and have reached the end of their typical 40-year lifespan. Refurbishing a coal power plant to extend its lifespan past the typical 40 years can cost up to $1.3 billion. Moreover, the cost of operating these plants increased by 28% from 2021 to 2024 due to higher fuel, capital (including debt service), and maintenance costs. These higher costs are passed on to consumers. In addition to being expensive to run, coal plants also have negative health and environmental impacts, especially on local communities.

Gridlock on the Natural Gas Buildout

Utilities faced with higher electricity demand are also looking into building new natural gas plants. But because so many utilities are exploring new plants at once, the average time to construct a new plant has increased from four and a half years to at least six, and wait times for gas-fired turbines can reach up to seven years. As a consequence, currently-proposed natural gas power plants will not enter service until at least 2030.

These delays are creating ripple effects across the energy supply chain and the labor market. The scarcity of transformers and iron and steel pipes is slowing down the already lengthy permitting and construction process, thereby further increasing costs. Labor costs are also rising due to a tight labor market in construction.

All of these factors add up: the cost to build a new plant has tripled since 2022. Natural gas plants expected to enter service in 2030 or later are reporting costs of $2,000 per kW, which may soon rise to $3,000. These higher generation costs are passed on to consumers through higher monthly energy bills.

Disadvantaged Communities Are Footing the Bill

Higher energy bills disproportionately affect disadvantaged communities, which often face significant energy burdens. Low-income residents, renters, Black households, and Hispanic households spend up to 20% of their income on energy, compared to 3% for higher-income households. Even before the data center boom, one in four households reported having difficulty paying their energy bills or maintaining safe indoor temperatures because of energy costs.

Soaring energy bills exacerbate insecurity for low-income households and renters. Utility bills go unpaid as families struggle to afford other essentials, such as food or medicine, leading to disconnections. About 21 million households—one in six in the United States—are behind on their utility bills. Total outstanding utility bill debt for U.S. households reached $25 billion in June 2025, an increase from about $15 billion in early 2022. As a result, utility shut-offs skyrocketed to 3.5 million in 2024 and may have reached 4 million in 2025, putting further strain on disadvantaged households.

To protect residential and small-business consumers from higher energy charges, utilities and state regulatory agencies across the country are starting to create separate, specialized rate classes and retail tariffs for large-load uses, including data centers. In the meantime, energy efficiency measures can help families shield themselves from rising energy costs while utilities and regulators determine how to meet increased energy demand without penalizing residential customers. On-bill financing is one innovative solution that helps households access energy efficiency upgrades at lower cost, especially in rural areas served by member-owned electric cooperatives. 

Author: Miguel Yañez-Barnuevo