The Electric Grid Needs Huge Upgrades. No One Knows Who Will Pay for Them.
Utilities around the U.S. are set to spend tens of billions of dollars on high-voltage lines, largely to meet demand from data centers
- The U.S. power industry is undertaking an expensive AI-driven expansion of the electric grid, with costs potentially shared by AI companies and consumers.
- The White House is seeking to work with utilities and state regulators to ensure that large tech companies pay for the cost to power new data centers.
- Utilities and regulators warn that consumers may still bear costs for grid upgrades, with PJM Interconnection approving $12 billion in projects.
The U.S. power industry is embarking on an AI-driven expansion of the electric grid, a build-out that promises to be one of the most expensive since World War II.
Some of the costs are set to be shared between power-gobbling AI companies and consumers already bridling at utility bills.
President Trump has sought to minimize the extent to which consumers will be forced to pay for new data centers that power the artificial-intelligence boom, but utilities and regulators warn that those measures won’t fully shield consumers from costs associated with long-needed upgrades to the system for transmitting power across the U.S.
Utilities around the country are planning to spend tens of billions of dollars to build new high-voltage transmission lines to carry electricity from power plants over long distances. Many companies this year announced plans to substantially increase capital expenditures to build the new capacity, in large part to serve demand from data centers.
Utility and power officials for years have argued for upgrading the aging transmission system, much of which was built to support the postwar population boom in the 1950s and 1960s. But doing so has historically proven pricey and time-consuming because of permitting issues, regional opposition and supply-chain snarls.
Now, as the AI race propels significant electricity-demand growth for the first time in decades, companies are seeking to overcome the hurdles to supply data centers, some of which use the same amount of power as a midsize city. They say the investments are needed to bring new power plants online and ease bottlenecks on the existing grid.
Southern Company, which operates electric utilities in Georgia, Alabama and Mississippi, expects to invest $81 billion in its system over the next five years, a 30% increase from its forecast last year. About $17 billion is earmarked for building and upgrading transmission, said Aaron Abramovitz, the company’s treasurer and senior vice president of finance.
“It’s because of growth, it’s because data centers are coming to the Southeast, but it’s also to ensure that we have a reliable energy source for all of our customers,” he said. “As new data centers come to our service territory, we’re making them pay their fair share.”
The AI build-out is driving up electricity costs in some places, an issue that has angered politicians and spurred intervention by the Trump administration. The White House this month announced that seven of the nation’s largest tech companies had agreed to pay for all the costs associated with powering new data centers.
Trump called it “a historic signing that will help keep down utility bills very, very substantially,” though the administration has no direct control over the prices utilities charge to customers. That is overseen by state regulators, who have in recent years approved rate increases as utilities make investments not only to support data centers but also to upgrade the grid to withstand more extreme weather and replace parts that are decades old.
The president “is promising something that is largely out of his control in a lot of ways and will be very difficult to rein in,” said Rob Rains, director of policy research for Washington Analysis, a research firm. “Electric service costs are going in one direction.”
A White House official said part of the pledge by tech companies includes negotiating with utilities to create frameworks to better ensure data-center costs aren’t borne by residential customers. Such negotiations have been under way for months in many states, with some having approved measures that require tech companies to pay more for power.
Transmission spending, though, poses challenges for utilities and regulators in determining how costs should be divided. In many places, some transmission costs will be shared among customers other than tech companies because the upgrades may benefit the broader system.
“Data center developers have said they want to pay their fair share, but the question is, what does fair mean?” said Timothy Fox, managing director at ClearView Energy Partners. “Cost allocation for transmission has always been a very complex and difficult question. It’s an imperfect science.”
The utility industry argues that adding data centers has the potential to lower costs for other customers, as they could spread shared costs over a greater volume of electricity sales. That has been the case in some places such as North Dakota.
Cost increases related to the data-center build-out have been most acute within PJM Interconnection, the nonprofit organization that operates part of the grid serving 67 million people in a 13-state region stretching from Kentucky to New Jersey. PJM is home to the largest concentration of data centers in the world, and the grid there is under strain as such facilities use more power and add to the risk of electricity-supply shortages when demand is high.
PJM last month approved nearly $12 billion in transmission projects meant to help stabilize the system. The grid operator says the spending, the largest amount it has ever approved at once, will help maintain grid reliability by transporting power from new power plants and relieving stress on the network. About half of the costs will be spread among all customers within PJM, and the other half will be allocated by region.
FirstEnergy is one of the utility companies within PJM that plans to build some of the transmission projects approved by the grid operator, as well as others it says are necessary to power data centers and maintain grid reliability. The company, which serves customers in six states, plans to invest $36 billion over the next five years, with transmission projects accounting for just over half the spending.
“It’s a heavy lift, no doubt, but we have the expertise and relationships to deliver,” FirstEnergy CEO Brian Tierney said during an earnings call last month.
In Texas, which has become a hot spot for data-center development, the grid operator known as Ercot approved a $33 billion transmission plan to handle the expected explosion in electricity demand. Ercot, which stands for the Electric Reliability Council of Texas, and state regulators are working to figure out how best to make sure tech companies pay for their share of the transmission build-out.
Brent Bennett, a director at the conservative Texas Public Policy Foundation, said the costs could fall more heavily on residential customers than on the companies that are creating the new demand. His organization has estimated that the average ratepayer will pay somewhere between about $150 and $225 a year for the transmission projects that have been recently approved.
“These costs are socialized in Texas, and the current method allocates a relatively large share to residential ratepayers,” he said.