Big Tech’s A.I. Data Centers Are Driving Up Electricity Bills for Everyone
Electricity rates for individuals and small businesses could rise sharply as Amazon, Google, Microsoft and other technology companies build data centers and expand into the energy business.
The annual meeting of state utility regulators is typically a humdrum affair of dry speeches and panel discussions. But in November, the scene at the Marriott in Anaheim, Calif., had a bit more flash.
The conference’s top sponsors included the nation’s biggest tech companies — Amazon, Microsoft and Google. Their executives sat on panels, and the companies’ branding was plastered on product booths and at networking events. Even the lanyards around attendees’ necks were stamped with Google’s colorful logo.
Just a few years ago, tech companies were minor players in energy, making investments in solar and wind farms to rein in their growing carbon footprints and placate customers concerned about climate change. But now, they are changing the face of the U.S. power industry and blurring the line between energy consumer and energy producer. They have morphed into some of energy’s most dominant players.
They have set up subsidiaries that invest in power generation and sell electricity. Much of the energy they produce is bought by utilities and then delivered to homes and businesses, including the tech companies themselves. Their operations and investments dwarf those of many traditional utilities.
But the tech industry’s all-out artificial intelligence push is fueling soaring demand for electricity to run data centers that dot the landscape in Virginia, Ohio and other states. Large, rectangular buildings packed with servers consumed more than 4 percent of the nation’s electricity in 2023, and government analysts estimate that will increase to as much as 12 percent in just three years. That’s partly because computers training and running A.I. systems consume far more energy than machines that stream Netflix or TikTok.
Electricity is essential to their success. Andy Jassy, Amazon’s chief executive, recently told investors that the company could have had higher sales if it had more data centers. “The single biggest constraint,” he said, “is power.”
The rush to build power plants and transmission lines comes as big tech companies are richer than ever because of their pivot to A.I.; after announcing blowout financial results in late July, Microsoft became the second public company to surpass $4 trillion in value.
Even as some corporate customers have been underwhelmed by A.I.’s usefulness so far, tech companies plan to invest hundreds of billions of dollars on it.
At the same time, the boom threatens to drive up power bills for residents and small businesses. Nationally, the average electricity rate for residents has risen more than 30 percent since 2020, after years of relatively modest increases. Much of that increase has been driven by utilities’ catching up on deferred maintenance and hardening grids for extreme weather.
In the coming years, A.I. could turbocharge those increases.
It is difficult to predict what that will mean for consumers’ power bills. But recent reports expect data centers will require expensive upgrades to the electric grid, a cost that will be shared with residents and smaller businesses through higher rates unless state regulators and lawmakers force tech companies to cover those expenses.
A June analysis, from Carnegie Mellon University and North Carolina State University, found that electricity bills are on track to rise an average of 8 percent nationwide by 2030 and as much as 25 percent in places like Virginia because of data centers.
In some places, it is happening already. Starting in June, the electricity bill for a typical household in Ohio increased at least $15 a month because of data centers, according to data from a major local utility and an independent monitor of the electric grid that stretches across 13 states and the District of Columbia.
Tech companies insist they are not trying to fob energy costs onto residents and small businesses, saying they are willing to pay for the power they use and for much of the equipment needed to make it available.
“We don’t want to see other customers bearing the cost of us trying to grow,” said Bobby Hollis, who leads Microsoft’s energy procurement.
But even with their expressed good will, getting the companies to make consumers whole will not be easy because determining how much large users like data centers should pay is not straightforward.
The business of keeping America’s lights on is mostly about two things: supplying reliable electricity and figuring out what to charge to deliver it. In recent years, big tech companies have inserted themselves into debates over both. They lobby lawmakers and regulators, and they are pitching their own pricing schemes to challenge those of utilities — something that would have been unthinkable a few years ago.
That has led to growing tensions.
The utilities pay for grid projects over decades, typically by raising prices for everyone connected to the grid. But suddenly, technology companies want to build so many data centers that utilities are being asked to spend a lot more money a lot faster. Lawmakers, regulators and consumer groups fear that households and smaller companies could be stuck footing these mounting bills.
For utilities, working with technology companies can be difficult but also lucrative.
States allow utilities to charge customers enough to recoup their costs and make money for shareholders based on how much they invest. New data centers require utilities to spend billions of dollars on power lines and plants, which should lead to bigger profits for the utilities over time.
“My No. 1 priority in all of this is to keep the lights on,” said Calvin Butler, the chief executive of Exelon, a large utility company, and the chairman of Edison Electric Institute, an industry association. “I think the tech companies’ being engaged in our industry makes this a very exciting time. Just pay your fair share of the grid.”
Ultimately, the technology companies may have an upper hand. In many states bursting with data centers, utilities cannot own power plants because of policies intended to encourage competition. But the tech giants do not have the same restrictions, and many have invested in power plants and secured control of electricity produced by others, making them both big users and suppliers of power.
The tech companies use the electricity produced at these facilities to help power their data centers or sell it to retail utilities on the wholesale market — a small but growing source of revenue. Over the past five years, electricity sales from tech companies’ energy subsidiaries totaled $2.2 billion, with much of that generated since 2022.
“Unless people lean on the public utilities commissions, the ratepayers will take it on the chin,” said Mark Cooper, an economic analyst at the Institute for Energy and the Environment at the Vermont Law and Graduate School.
‘Extremely New Territory’
In the debate over who will foot the bill, the industry’s eyes have been fixed on Ohio.
On a snowy day in December, a first-of-its-kind showdown played out in a small hearing room in Columbus. Lawyers for Amazon, Google, Microsoft and other technology companies faced off against representatives of an electric utility.
The tech companies had plans for dozens of new data centers, so much that the local utility, American Electric Power, projected it would need six times the electricity central Ohio produced.
The utility had spent months meeting with the state’s consumer representative, tech companies and related industries, and the staff of the regulator, the Public Utilities Commission of Ohio, to hammer out a deal.
But in October, before the negotiations were done, the tech companies gave the utility a few days’ notice that they were submitting their own proposal. Industry experts said they had never seen that kind of front-running before. Under the companies’ plan, they would pay less upfront than the utility had wanted.
Days later, the Ohio utility, the consumer representative and the regulator’s staff countered with a plan that would create a class of customer for data centers and would require them to pay more. This category would be in addition to the four main types of electricity customers — homes, businesses, factories and public rail systems — that pay different rates in Ohio and other states.
The hearing in Columbus, before an administrative law judge, was about power in the literal sense — the electrons that keep the lights on and fuel modern technology — and power in the political sense.
American Electric Power, which has 5.6 million customers in 11 states, warned the judge that if the state did not adopt its proposal, residents and smaller businesses would bear much of the costs for tech companies’ power demands.
Despite tech companies’ professed desire not to burden others, they often push regulators to impose some of the upgrade costs on everybody. They contend that data centers bring jobs to the area, and that grid upgrades will ultimately help local businesses and residents.
At one point, a lawyer representing Amazon sought to get an executive from the Ohio utility to admit that he had once welcomed data centers to the state.
“You said something to the effect of ‘Data centers are great for the economy,’” David Proaño, a partner at the law firm BakerHostetler, prodded. “Do you remember saying something like that?”
The executive, Kamran Ali, deadpanned that he had “said a lot of things.” Mr. Ali testified that he worried about how the voracious power demands would tax the electric grid and hurt other consumers.
Scores of residential and business customers raised similar concerns in comments to Ohio regulators.
“To even consider foisting more fees on Ohio’s private citizens is a travesty,” Benjamin Yoder, who lives in Blacklick, east of Columbus, wrote in a comment for a public hearing in January.
An anonymous customer from Upper Sandusky wrote: “Our wallets cannot be strained anymore. Make them pay their own bills like we do!”
The utility in Ohio has already committed to supplying electricity for 30 data centers in the region by 2030, reaching power consumption levels in the Columbus area as high as Manhattan’s. But the tech industry is making additional requests to power 90 more data centers, which could make consumption comparable to the entire state of New York during a peak summer day.
“We’re used to a couple megawatts added to our system,” Marc Reitter, president and chief operating officer at the utility, said in an interview. “Massive amounts of power is extremely new territory.”
The utility’s proposal for a new category of customer will require data centers to make years of payments for the energy they need — something other customers are not required to do.
It wanted data centers and cryptocurrency miners to pay at least 85 percent of the electricity they request, even if they did not use it.
But Amazon, Google, Meta, Microsoft and other tech companies said they should pay less than what the utility wanted. The settlement the companies filed had committed to 75 percent of the electricity they requested, depending on the length of the contract. That would leave other utility customers to shoulder more of the cost of new grid equipment.
In addition, the tech industry wanted all large customers, including factories, to be treated the same. And it proposed a higher threshold for determining if data centers should be considered large users than in the utility-led proposal.
Kevin Miller, who was until recently a vice president at Amazon, said the Ohio utility’s plan could result in tech companies’ overpaying because data centers ramp up operations in phases. And data centers could be required to pay for power even if the utility failed to deliver all the energy it had committed to supplying, he said.
“We just don’t think that it has the right kind of flexibility to really match the profile over time that the data center brings,” Mr. Miller said in an interview before he left Amazon in July.
Last month, after spending months weighing the proposals, the commission ruled 5 to 0 against the tech companies.
“Today’s order represents a well-balanced package that safeguards non-data-center customers,” Jenifer French, the chair of the commission, said in a statement after the ruling.
Last Friday, the tech companies asked the commission to reconsider the case, calling the ruling “unlawful and unreasonable.”
Another Risk: Growth Could Falter
The Ohio ruling hinged on a big concern for utilities and lawmakers: that the tech companies may be asking for a lot more power than they will ultimately use. The worry is that executives could overestimate demand for A.I. or underestimate the energy efficiency of future computer chips. Residents and smaller businesses would then be stuck covering much of the cost because utilities largely recoup the cost of improvements over time as customers use power rather than through upfront payments.
These are not idle fears. Tech companies have announced plans for data centers that are never built or delayed for years.
The utility’s executives said their proposal sought to protect all customers if tech companies abandoned or delayed projects. They pointed to a case in Virginia, where regular customers had to cover initial costs of grid upgrades for a data center that started operating years later than planned.
In that case, a developer of data centers, Unicorn Interests, told Dominion Energy, a large utility, in 2010 that it would build a data center next to the regional airport in Manassas, near Washington, that would need electricity by July 2013.
Virginia regulators approved Dominion’s $42 million plan to build a substation and a transmission line to serve the campus, which was run by an investment trust founded by the real estate developers Hossein Fateh and Lammot J. du Pont, a descendant of the du Pont dynasty. By late spring 2013, Dominion had procured most of the materials it needed for the project and done some site work, but Unicorn was behind schedule.
Ultimately, the data center did not sign a customer until summer 2017. During the four-year delay, ratepayers in and around Manassas paid millions of dollars for upgrades that were not being used. Because Unicorn was not drawing electricity from the new equipment, it paid Dominion nothing or very little in those years.
In an interview, Mr. Fateh acknowledged the delays but said Unicorn had helped usher in a data center boom in the area.
He also said he supported the utility industry’s efforts to have data centers make upfront payments for grid upgrades to weed out projects that might not be completed.
“Most utilities really, really like our business because we are using a consistent amount of power, day or night,” he said. That means once they are up and running, data centers buy power all the time, unlike homes, which primarily use electricity in the morning and evening.
A spokesman for Dominion Energy, Aaron Ruby, said another data center project had replaced Unicorn and covered some of the costs, so “any impacts to residential customers would have been temporary and minimal, if anything at all.”
Data centers are contractually required, Mr. Ruby said, to pay for the full cost of new distribution infrastructure — including substations and the poles and wires that connect the data center to the substation — within the first four years of their service.
But that requirement does not apply to all upgrade costs. To serve large energy users, utilities also have to upgrade transmission lines that take electricity from power plants to the substation. The cost of upgrading those lines is generally borne by everyone.
Data centers have flocked to Northern Virginia because it is home to critical internet cabling and government agencies. The tech buildings now account for more than a quarter of the region’s energy use.
A Virginia agency concluded in a report in December that data centers had generally been paying their fair share of grid upgrade expenses, but that costs to residents could rise $276 a year by 2030 because of data centers. That number could be substantially higher if construction plans for data centers are delayed, or if they are never built or use less electricity than planned.
The report recommended that the state create a rate class for data centers — similar to the proposal that regulators approved in Ohio and other states are contemplating. At a hearing in Richmond, Va., in December, the tech companies pushed back against that idea.
“We do see an industry-specific rate class as discriminatory,” Brian George, a Google executive, said at the hearing. “Once we start going down that road, it does become a very slippery slope for how we can stop. If we assign it to one particular industry, how do we not assign it to another?”
But James Wilson, an energy economist who has consulted for consumer and environmental groups, noted that data centers accounted for almost all the electricity demand growth expected over the coming years in the Mid-Atlantic region.
“Discrimination, yes; undue, not really,” he testified at the same hearing.
The technology companies say they are open to compromises. In an interview, Amanda Peterson Corio, a Google executive responsible for data center energy, pointed to a deal with American Electric Power’s subsidiary in Indiana and consumer groups in that state, where tech companies agreed to pay some grid upgrade costs upfront to allay concerns about canceled or delayed projects.
But under that deal, data centers are not put into a new rate class. “You start to isolate different classes and start to allocate who we’re going to give power to and who we’re not,” Ms. Corio said. “That goes against every construct of how our electricity system was designed, which is to be open access.”
Tech companies say they plan to keep building data centers, but where those sites will be is uncertain. That puts utilities at risk of building more than their area needs.
Microsoft, for example, announced plans in October to build three data center campuses that would require power from the Ohio utility. “The Columbus region’s skilled work force, strong infrastructure and strategic location make it ideal for this project,” the company said then.
But six months later — before regulators ruled against the tech industry — Microsoft changed its data center strategy and said it was putting the Ohio projects on ice. For the foreseeable future, those sites would remain farmland.
