Data Center Demand For Electricity Provokes US Government Response

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The phenomenon known as “artificial intelligence” has created a mad scramble for electricity. Some industry analysts believe one quarter of all the electricity in the world will be devoted to powering these digital behemoths by 2050. The word that best describes the quest for power to operate them is “frenzy.”

But here’s the problem. The data center developers — the smaller companies who actually build them and then sell their data-crunching ability to the tech giants like Microsoft, Google, Amazon, and Meta — aren’t completely convinced the data center boom will last. They want gigawatts of electricity today, but don’t want to commit to the same usage in the future.

Utility companies do not operate on short timelines. They think in terms of decades. There are thermal generating stations in America that began operating when Eisenhower was the president. They don’t want to hear it when the data center developers tell them they need massive new supplies of electrons now but don’t want to commit to what their needs will be in the future. That could leave the utility companies with billions invested in generating facilities that are not being fully utilized, and you know who winds up paying then, don’t you?

In the arcane world of economics, uncertainty has a cost, and that cost is getting passed on to other utility customers, driving up the price of electricity in many parts of the US. According to Bloomberg, “The average US retail price for electricity gained 7.4 percent in September to a record 18.07 cents per kilowatt-hour, the biggest gain since December 2023. Residential prices have jumped even higher, rising by 10.5 percent between January and August 2025, marking one of the largest increases in more than a decade, according to the National Energy Assistance Directors Association.”

The Rising Cost Of Electricity

The price to secure power capacity in PJM has exploded in recent years with $23 billion attributable to data centers, according to watchdog Monitoring Analytics. Those costs are passed down to consumers. This amounts to a “massive wealth transfer,” it told PJM in a November letter, according to CNBC.

Those escalating costs are causing lots of people to push back against new data centers in their neighborhoods. Part of the problem is that the data centers pressure utilities for preferential rates. It’s a standard part for the “economic development” game. Give us a discount and we will buy a lot of your electricity. But why should Mark Zuckerberg, or Jeff Bezos, or Elon Musk get a deal if if means ordinary people have to pay a higher price for their electrons?

It’s a conundrum. In some places, officials are taking steps to balance the competing interests of different rate payers. Ireland just announced rules that require new data centers to obtain their own supply of electricity, 80 percent of which must be from renewables. Six months ago, the Ohio PUC issued a ruling that requires data center operators to commit to paying for at least 85 percent of the upgrades they say they will need, even if the demand they expect doesn’t materialize.

The US government last week announced a new plan for the the area covered by PJM, the largest regional grid operator in the nation, whose area of responsibility extends from the mid-Atlantic states to the Midwest.

According to Bloomberg, the administration and several state governors will direct PJM to hold an auction for tech companies to bid on 15 year contracts for new electricity generation capacity. If the auction proceeds as planned, “tech giants would pay for power over the duration of the contracts, whether they use the electricity or not, providing secure revenues for years in a market notorious for price volatility and generator bankruptcies.”

The oddity here is that the announcement blindsided the grid operator, who told Bloomberg they would not be attending the big meeting between the federal government and the states because it was kept out of the loop. In an email to Bloomberg, PJM spokesperson Jerry Shields said, “We don’t have a lot to say on this. We were not invited to the event they are apparently having tomorrow and we will not be there.”

What is curious is that the Ohio PUC took a full year to arrive at its new policy and Ireland has been formulating its plan since 2021. The US apparently decided to do this over lunch. Doesn’t that suggest the real reason for this is another made up emergency designed to solidify the power of this administration?

Affordability is now a political hot button, so let’s not consult with anyone in the industry who may actually understand the business. Instead, let’s just jump in with both feet and start ordering people to do things. That ought to shut up all those people bellyaching about high utility bills! Oh, and this will keep them from asking impertinent questions about Jeffrey Epstein as well. Great! Let’s do it! It’s another “Fire! Shoot! Aim!” exercise from the the so-called government in Washington.

Bashing Renewables

Make no mistake; this is all about the administration’s continued bashing of renewable energy. In the official press release, Chris Wright, the putative energy secretary, made sure to slam renewables. “High electricity prices are a choice,” he said. “The Biden administration’s forceful closures of coal and natural gas plants without reliable replacements left the United States in an energy emergency. Perhaps no region in America is more at risk than in PJM. That’s why President Trump asked governors across the Mid-Atlantic to come together and call upon PJM to allow America to build big reliable power plants again.

“Our directives will restore affordable and reliable electricity so American families thrive and America’s manufacturing industries once again boom. President Trump promised to unleash American energy and put the American people first. This plan keeps that promise.”

The proof of the pudding is supplied by Bloomberg. It reported that after the announcement, shares in GE Vernova, which manufacturers turbines for methane-fired generating stations, jumped nearly 8 percent.

Fast Tracking Thermal Generation

This plan could fast track the development of natural gas generation and potentially nuclear plants by guaranteeing revenues — and profits — specifically to support data campuses needed to deploy artificial intelligence. It may also benefit the largest data center operators, who can pass fluctuations in energy costs on to their customers.

It does have the potential to help PJM address a longstanding issue — improving the accuracy of its forecasts for demand growth. With tech giants paying for the power plants they need, the approach could weed out speculative projects that have skewed demand growth projections. The most recent auction in December fell 6.6 gigawatts short of supplies, which PJM blamed on the frenzy to build massive data centers.

The good news is that the rise in utility rates because of data center demand is being addressed. The bad news is that any blather about extending a helping hand to ratepayers is just that — blather. This is all about helping the methane industry, and, oh, did we mention that Chris Wright is the former head of one of the largest fracking companies in America. Coincidence? We think not.