Rising electricity prices predate the AI boom, driven by limited supply, outdated grids, and regulatory bottlenecks.
There is a myth gaining traction in both political parties and among the public that data centers are to blame for rising electricity prices and that, if the government just gets tough against Big Tech companies, all will be well. Like other far-flung conspiracies that offer simple answers to complex and daunting problems, and seek to take the responsibility off of politicians to find real solutions, that is wrong.
And a reminder: Utility companies are still the ones sending out electric bills based on rates that are overseen and monitored by independent, legally rigorous utility commissions.
Big Tech’s commitments to purchasing large amounts of power for continuous 24/7 use at data centers that produce artificial intelligence (AI) can be a catalyst for a more reliable electric grid, more abundant power, and lower electricity costs. Electric utilities and others should welcome these large customers, as many states have.
If hostility toward Big Tech companies continues, they may opt to build standalone power-generation sources. That is bad for communities that still face electricity challenges, and tech companies would probably prefer to focus on building data centers rather than power plants.
Seven Things to Know About Data Centers and Electricity Prices
- Electricity price increases have exceeded core Consumer Price Index (CPI) well before the AI boom. According to the Federal Reserve, nationwide electricity prices rose 31.6 percent from January 2021 to January 2025, compared with the underlying inflation of 21.4 percent in the Consumer Price Index (CPI). Thus, electricity prices rose 48 percent more than other goods and services before major expansion plans were announced for data centers.
- The regulatory structure is extensive to ensure consumers get a fair deal.States predominantly regulate electric rates, service requirements, and capital investments. In some cases, federal entities such as the Tennessee Valley Authority or local bodies will do so. There is plenty of independent scrutiny to ensure fairness in rates.
- Electricity production has been largely flat since 2010.America has largely stopped building new power plants, and this should change to ensure an abundant energy supply to support economic growth across all areas. According to the US Energy Information Administration (EIA), total power generation from power plants rose just 4.5 percent from 2010 to 2014.
An emphasis on efficiency and rooftop solar has cut demand for new plants. Had more plants been built over the past 15 years, prices would be lower today. Abundant power plants will also help facilitate a manufacturing renaissance.
4. Permitting processes need to be revamped. Today, transmission companies typically plan to complete a project in a minimum of 10 years—eight years for the paperwork and approvals, and two years for the build. An October 2024 report by the US Department of Energy (DOE) found that the average duration is 10 years, and many projects take up to 15 years. New plant construction is similarly onerous. There is bipartisan support for permitting reform in Congress, and enacting it should be a high priority in 2026.
5. The transmission grid is old. The DOE reported in 2023 that “much of the US electric grid was built in the 1960s and 1970s,” and 70 percent of transmission lines were over 25 years old. Major improvements are necessary to prevent blackouts, and these are expensive. Big Tech data centers will provide important capital to support these improvements.
6. Faulty reliability costs consumers a great deal. Worse than a high electric bill are the costs that can come with blackouts—spoiled food, fried electronic equipment, and even accidents that happen in the dark. Having an adequate supply of electricity and the ability to distribute it smoothly are key.
7. Cutting government taxes on electric bills will immediately improve affordability. Many states and localities impose sales taxes on electricity, even though it is essential for modern life. Cutting these taxes and a bevy of other fees is an immediate way to improve affordability.
How to Make Electricity More Affordable
The path to more abundant, affordable electricity is rooted in building more power plants and upgrading the electric grid. Rather than scapegoating, politicians should champion these steps to best serve their constituents.
About the Author: Paul Steidler
Paul Steidler is a senior fellow with the Lexington Institute, a public policy think tank based in Arlington, Virginia. He researches, studies, and discusses federal government policy on technology and logistics issues, identifying ways the federal government can work more efficiently. This includes analyzing the costs and impacts of federal government policies, as well as their interactions with the European Union and other international organizations.
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