The AI Boom and the Rising Cost of Electricity
The rapid growth of artificial intelligence (AI) is causing significant tension in various states across the United States, as rising electricity bills become a major concern for residents. Governors, attorneys general, and other officials are increasingly opposing proposed rate hikes by utility companies, arguing that cash-strapped consumers are being unfairly burdened by a flawed system.
At least six states — Arizona, Indiana, Maryland, New Jersey, New York, and Pennsylvania — are taking extraordinary measures to challenge these rate increases. Some are even urging utilities to completely overhaul their financing models for major infrastructure upgrades. This push comes during a midterm election year, where affordability has emerged as a central issue in Democrats’ efforts to gain control of Washington.
In Arizona, Attorney General Kris Mayes, a Democrat seeking re-election, is actively contesting two utility rate increase requests before the state’s utility regulatory board. She has criticized what she describes as "blatant corporate greed" from monopoly utilities in the state.
Wall Street Takes Notice
The energy demands of AI data centers have significantly increased electric prices in certain regions, sparking a boom in the energy sector. Consumer advocates have long attempted to challenge the size of utility investment returns in front of regulators, but the current situation is different, according to Matt Kasper of the Energy and Policy Institute.
“We’ve entered into this era of expensive energy and (demand) growth, and we’re seeing utility profits at record highs and rising utility bills,” Kasper said.
Utilities have traditionally been seen as a stable investment, with predictable income and demand. However, with the expansion of data centers, many utilities — often owned by large, for-profit parent companies — have experienced strong stock performance.
While utility investment returns approved by regulators are not the sole cause of rising bills, they are considered a contributing factor. A recent report by the Energy and Policy Institute revealed that the profits of 110 for-profit utilities increased from nearly $39 billion in 2021 to over $52 billion in 2024.
The Debate Over Utility Profits
Mark Ellis, a former utility executive turned consumer advocate, claims that about 10% of the typical customer bill represents what he calls "excess profit" from for-profit utilities. He argues that instead of setting returns above market requirements, utilities should seek the lowest-cost investor capital.
Paul Ferraro, an economics professor at Johns Hopkins University, views targeting utility investment returns as a political action rather than an economic one. He believes it addresses deep societal disagreements about who benefits from essential infrastructure, but does not address the core challenges facing the electricity sector.
These challenges include investments in modernization, expansion, renewable energy, and distributed power sources. Ferraro emphasizes that the focus should be on solving these issues rather than just reducing profits.
Affordability Becomes a Priority
Affordability has become a key topic in corporate earnings calls. Travis Miller, an energy and utilities analyst for Morningstar, notes that utility executives are now focusing on cost-cutting or protecting residential customers from the costs associated with supplying electricity to data centers.
“If rates aren’t affordable currently, there’s no way that utilities can get the rate increases they need to boost earnings and dividends for investors,” Miller said.
Utilities argue that home electricity bills as a proportion of household income have decreased over the past few decades. They defend their investment returns as necessary to maintain reliable electric grids and ensure service for millions of people. They also warn that investors may shift their capital to utilities in other states offering higher returns.
Critics dismiss this as fearmongering.
Regulatory Reforms and Political Pressure
In New Jersey, the Board of Public Utilities launched one of the most significant regulatory reviews in a generation, questioning how utilities should earn revenue in a modern energy system. In Pennsylvania, Governor Josh Shapiro pressured PECO, a subsidiary of Exelon Corp., to withdraw a 12.5% rate increase, which would add $20 per month to the average residential customer's bill.
Shapiro criticized the "20th century utility model" and argued that corporate profitability should not be the sole driver of infrastructure development. His actions led to a drop in share prices for Pennsylvania-based utility companies.
Exelon, the Chicago-based parent company of several utilities, emphasized its commitment to affordability. Calvin Butler, Exelon’s president and CEO, stated that the company is focused on justifying its spending and keeping energy bills as low as possible.
In Indiana, Republican Governor Mike Braun appointed new utility commissioners tasked with challenging rate increases. Their first major test involves AES Indiana’s request for a 10.1% rate hike, which could add $193 million annually to ratepayers’ bills.
Ben Inskeep of the Citizens Action Coalition noted that an 8% return instead of the requested 10.7% would significantly reduce the proposed increase.
In Arizona, Mayes is challenging two 14% proposed increases, claiming they could be drastically reduced if companies were simply paid the cost to maintain reliable service.
“It’s becoming unbearable for the people in Arizona,” Mayes said. “And I think we have to fight back.”
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