Why your electric bill is so high—and what could bring down rates

Electric bills are climbing almost everywhere—and in some states, the increases have been staggering. If you live in the Bay Area, your average utility bill from PG&E went up nearly 70% over the last five years. Between 2024 and 2025, alone, bills grew by double digits everywhere from Utah to Massachusetts to Tennessee.

The surge in AI data centers often gets the headlines as the main cause of the increase, but they’re just one of many factors. Here’s what’s driving soaring utility bills, and what could help fix it.

It’s not necessarily data centers—yet

In a Berkeley National Lab report published last year that looked at trends in electric rates from 2019 to 2024, researchers found that states that had the biggest growth in electricity demand—from customers like data centers—actually saw costs go down. That’s because the electricity market isn’t just about supply and demand; it’s expensive to maintain equipment, and if costs can be spread out among more customers, everyone pays less.

But that’s starting to change as data centers use up the remaining room on the grid and start to need new power plants and other infrastructure. “We are seeing utilities run out of that spare capacity, and new investments will need to be made to accommodate for the growth,” says Ryan Hledik, a principal at the economics consultancy Brattle Group, which worked on the Berkeley Lab report. An analysis from Bloomberg News with more recent data found a strong correlation between higher energy costs and locations near data centers, with prices in some areas as much as 267% higher than they were five years ago.

Still, new data centers don’t automatically have to mean higher utility bills for households. “A lot of this depends on what rates utilities are charging to those new data center customers,” says Hledik. “If the utility is charging them a rate that covers all of those incremental costs that they’re imposing on the system, then that protects other customers from rate increases.”

Microsoft recently announced that it plans to voluntarily cover the cost of any grid infrastructure that’s needed when it adds a data center. Several states are considering policies that would require all data centers to pay their own way; some states, like Oregon, have already passed laws.

Other new policies under consideration would require data centers to cut their power use when the grid is stressed. “They can connect to the grid, but they’re going to be interruptible,” says Jackson Morris, director for the state power sector at the nonprofit NRDC. “So they’re going to be the ones that get shut off first, not Grandma’s house, and not the hospitals.” If data centers can avoid creating new peaks, they can also help avoid the need to build as much expensive new infrastructure.

The aging grid needs updates

Data centers aren’t the only problem. The Berkeley Lab report pointed to outdated infrastructure as a widespread issue. “Basically, our entire grid is getting older,” says Hledik. “Portions of the distribution system are 80 years old at this point. These parts of the grid need to be replaced just to continue to maintain the same level of reliability that we have.”

At the same time, utilities are struggling to deal with more disasters, from hurricanes to wildfires. “As we’ve got more extreme storms, you’ve got more grid infrastructure that’s knocked out of service that has to be replaced. And then you have to harden existing infrastructure, too,” says Tyson Slocum, director of the energy program at the nonprofit Public Citizen. In California, for example, 40% of the increase in energy bills over the past five years came from wildfire-related costs.

Upgrades have been delayed in the past. Now, thanks to inflation, supply chain issues that started in the pandemic, and Trump’s tariffs on critical materials like steel, equipment like poles, wires, and towers are expensive to replace.

And it’s customers who are footing the bill. One thing that could help somewhat: pushing back on the rate of return that utilities earn as they build new infrastructure. Regulators let utilities bill customers for capital costs, but then they’re also allowed to make a profit for their investors. In California, that rate of return was recently dialed back—just by a tiny amount, 0.3%—but that’s going to help slightly shrink home energy costs.

We need more power

The electric grid needs more access to power not just for data centers and other large customers, but as households begin to shift to heat pumps, induction stoves, and electric cars. Unfortunately, the process of adding power has been painfully slow; it can take five years for a new power plant to get connected to the grid.

“When electricity demand is relatively flat as it has been for quite some time in this country, you can paper over the cracks pretty well,” says NRDC’s Morris. “You can afford to have a broken [interconnection] queue. It’s not ideal, but you can kind of limp along. What’s happening now is in the face of exploding load growth on the system, all those cracks are turning into canyons. And all the things that were broken about the system are now coming into stark relief.”

Helping speed up the process to get permits would obviously help. Unfortunately, the Trump administration has been actively slowing down the process to build new wind or solar plants. “At the very time when you are seeing exploding load growth, [Republicans] just tried to kneecap the cheapest, quickest technologies to get on the grid to meet that demand, which is solar and battery storage,” Morris says. (New gas plants face long delays, with 5–7 year waits to get some parts; newer technologies like small modular reactors still aren’t ready for deployment.)

A new analysis from the American Clean Power Association found that in the PJM grid, a region that sprawls from Illinois to Virginia, households could spend as much as an extra $8,500 over the next decade—and have less reliable access to electricity—if new renewable power plants don’t keep growing.

The Berkeley Lab report notes that states that have access to abundant solar and wind generally didn’t see their electric bills rise as quickly as in other areas. On the other hand, states with policies that require them to buy a certain amount of renewables—even at times when the price is higher—did see a slight increase in costs. “That’s to be expected—I think we’re developing those policies realizing that there’s a cost associated with dealing with climate change,” Hledik says.

As large-scale infrastructure struggles, there are also other ways to add power more quickly. A technology called dynamic line rating, for example, can make better use of existing power lines, unlocking 40% more capacity from transmission lines. Heimdall Power, a Norwegian company that has been quickly expanding in the U.S., says that there’s a “huge opportunity” for more deployment of its sensors and other technology, which make it safe to let more power flow through existing infrastructure. By making better use of transmission lines, utilities could avoid building as many power plants.

Other companies are finding creative ways to build virtual power plants. Base Power, a Texas startup that recently raised $1 billion, owns a fleet of batteries that it installs at homes. Customers can save on electric bills by using the batteries when demand peaks; the system also helps utilities cut costs by easing strain on the grid. Similarly, companies like Renew Home use smart thermostats and other devices to let customers automatically tweak energy use to save money, while helping add new capacity to the grid.

It’s far cheaper and faster to promote energy efficiency or shift when customers use energy than to build a new gas plant, and it also helps customers. Data centers could help pay for solutions like this. For example, states could “ask data centers to pay for energy efficiency improvements for low-income customers in the community where they’re developing a data center,” Hledik says.

In some cases, large customers like data centers can also build some of their own power. That’s starting to happen in creative ways, like a new data center in Nevada powered by solar panels and used EV batteries.

The catch, of course, is getting those projects—and new utility-scale power plants—to focus only on clean energy. As utilities struggle with making the grid resilient to extreme weather from climate change, they need to look at the long-term challenges, Hledik says. “When I look at this from an economist’s perspective, it does provide support for the idea of going out and continuing to invest in clean energy and decarbonization measures, even at a time when federal policy is not necessarily supporting that,” he says.

“We have two options. One is to continue to invest money in the grid to make it more resilient in those situations. Two, try and address the bigger picture trend that’s driving the underlying cause of those wildfires and other natural disasters.”