Data centers are wrongly taking the blame for electricity price hikes

 Republican Sen. Josh Hawley is on a mission. He’s out to protect residential electric consumers from predatory price increases driven by the skyrocketing demand for electricity from the burgeoning data center industry. The blocky, electricity guzzling facilities have been driven to new heights by massive investment in artificial intelligence across the country.

 

“People cannot afford their energy bills,” Hawley told Politico. “I don’t want to have a bunch of corporate data centers come in, whether it’s AI data centers or something else, and gobble up all of the electricity from the grid and force rates up for everybody else.”

 

Hawley is not alone in that analysis. A July Washington Post news report put the situation just as clearly as the Missouri senator. “It is possible to trace the price hikes … to a specific source: the boom in data centers, those large warehouses of technology that support artificial intelligence, cloud computing and other Big Tech wonders. They consume huge amounts of electricity, and, as they proliferate, the surging demand for electricity has driven up prices for millions of people, including residential customers who may not ever use AI or cloud computing.”

 

But things turn out to be a little more complicated than that. The same paper reported only a few months later that a new government analysis found the exact opposite. “Between 2019 and 2024, researchers calculated, states with spikes in electricity demand saw lower prices overall. Instead, they found that the biggest factors behind rising rates were the cost of poles, wires and other electrical equipment — as well as the cost of safeguarding that infrastructure against future disasters.”

 

What is really going on?

 

Well, one thing is inflation. In most of the United States, electric rates haven’t gone up any more than the general inflation rate for the last five years. Those nominal price increases still hurt, but that is not being driven by greedy utilities or growing data centers. The prices of the wood, steel and copper that utilities need to serve their customers have all gone up with inflation.

 

A second change is something called “cross subsidization.” In a letter to Missouri’s largest utility, Hawley expressed concerns that consumers are paying high prices for electricity to subsidize sweetheart deals for the data centers. It turns out that exactly the opposite is happening.

 

For decades after World War II, as the suburbs were born, industrial and commercial electricity users paid artificially high rates that ended up subsidizing regular folks. But over time, utilities learned that it was a lot more expensive to serve a whole suburb of houses and small businesses than it was a couple of data centers. They need more utility poles, more miles of wire and more electric equipment like meters to serve many small customers than they do to feed electricity to a few big users. In recent years, utilities have been unwinding that cross-subsidy, raising rates for small electric users more than they have for big ones to reflect those costs of serving different kinds of customers.

 

Third, the price of electricity is growing the fastest in places where demand is growing very slowly or even shrinking. Why is that? One big reason is that states that imposed the strongest climate change regulations are seeing more consumers small and large produce their own electricity through solar and wind. That means there are fewer buyers for electricity to split the large fixed costs of things like power lines and electric plants, which don’t become cheaper to operate when there are fewer customers.

 

You can see the impact of those three trends by looking at three states across the country. Virginia is the number one state for data centers, with more than 600 of the behemoths. Its electric price, according the Energy Information Administration, is 16 cents per kilowatt hour, pretty close to the 15 cents we pay in Missouri, where we have fewer than 50 data centers. Consumers in Texas, the state with the second most data centers, also pay about the same as Missouri. In California, a much more populous state than either Virginia or Missouri, there are less than half as many data centers as in Virginia, but with its shrinking market for electricity, the price has risen to nearly 32 cents. That couldn’t happen if data center growth was the driver of electric rates.

 

So, Sen. Hawley may be right that rising electric rates are causing people around the country a lot of pain, but blaming Big Tech’s data centers and old tech’s utilities for hurting consumers isn’t the right diagnosis.

 

David Mastio is a national columnist for McClatchy and The Kansas City Star.

 

Read more at: https://www.kansascity.com/opinion/opn-columns-blogs/david-mastio/article312797975.html#storylink=cpy