<p>The states that experienced the largest increase in electricity prices over the past five years were not those with growing demand from industrial customers, such as Texas, but rather states where demand has declined. Electricity prices rose 4.2% over the last year, surpassing broader inflation rates. While the growth of data centers is often cited as a reason for rising residential electricity prices, state-level data indicates a different trend.</p>
<p>Lower-income Americans are disproportionately affected by ineffective energy policies. Households in the lowest 20% of income earners spend a median of nearly 10% of their income on energy, compared to 1.2% for the top 20%. According to the Census Bureau’s Household Pulse Survey, as of September 2024, 44% of adults with household incomes under $25,000 reported being unable to pay an energy bill in the past year. Additionally, 56% of individuals in this income bracket, totaling more than 15 million adults, indicated that they had to forgo basic household necessities to pay for energy bills.</p>
<p>Since January 2020, electricity prices have increased by 43%, outpacing broader inflation at 28%. Electricity demand forecasts have accelerated since 2022, concluding a period of flat growth lasting over a decade. This demand is attributed to factors such as data centers, reindustrialization, and electrification. Utilities’ forecasts suggest that the United States will need to add capacity at nearly double the pace of the previous decade to meet demand and maintain reserve margins.</p>
<p>Texas and Virginia have been the primary locations for new data centers. From 2019 to 2025, Texas's electricity demand grew by 21%, with real residential electricity prices rising by 4.5%. In the same timeframe, Virginia's demand increased by 22%, while its real residential electricity prices rose by 0.5%. Although both states experienced price increases in real terms, these were below the U.S. average real residential price increase of 5.6%.</p>
<p>The seven largest increases in electricity prices occurred in states (and the District of Columbia) where demand declined. From 2019 to 2025, electricity demand in Maine fell by 5.9%, while real residential electricity prices rose by 23.3%. New York experienced a 1.4% decrease in demand, with real electricity prices increasing by 16.8%. California had the largest price increase in the nation, with a 5% drop in demand, influenced by factors such as wildfires that have affected both demand and costs for ratepayers. States are advised to focus more on declining demand rather than increasing demand.</p>
<p>Rising electricity prices are partly due to utilities’ investments in expanding and maintaining existing infrastructure. Investor-owned utilities invested $1.3 trillion (nominal) in total capital expenditures from 2015 to 2024. As demand decreases, the fixed costs of infrastructure investment are distributed over fewer kilowatt-hours of consumption, resulting in higher costs for remaining customers.</p>
<p>Data centers can increase household bills if states and grid planners do not implement effective policies. PJM, the grid operator for 13 states, compensates power generators in advance to ensure power availability when needed. In its analysis of PJM’s capacity auction in December 2025, the Independent Market Monitor found that $6.2 billion of the $16.4 billion total, or 38%, was linked to new data center demand. The costs associated with large industrial customers are being passed onto ratepayers to guarantee sufficient power supply. States should not reject demand but rather require large industrial customers to provide their own supply or cover the costs of any necessary new capacity.</p>
<p><em>Grant Dever is a visiting fellow at the Foundation for Research on Equal Opportunity.</em></p>