Lawmakers Warn: AI Data Centers Poised to Spike Residents’ Power Costs

For the first time in decades, the United States faces a critical need to increase electricity production. Rising power demands are attributed largely to the rapid expansion of data centers, which house extensive arrays of computer servers essential for our digital landscape.

State lawmakers have actively pursued these operations through tax incentives and breaks. However, concerns are mounting over the infrastructure demands of these facilities and their potential to inflate utility bills for consumers. The surging use of artificial intelligence, which demands significant computational resources, exacerbates these worries.

“We’re going to have tremendous stress from AI,” warned New Jersey state Senator Bob Smith. The senator, who leads the Environment and Energy Committee, expressed dismay over the looming crisis in electric rates. “These outrageous increases are going to be put on the citizens. Why should they bear the rate increases?”

In response, Smith has proposed a bill mandating that new AI data centers in New Jersey source their power from clean energy alternatives, contingent on similar actions by neighboring states. This bill is among various legislative efforts nationwide aimed at preventing data centers from burdening other consumers with rising rates, as noted by the National Caucus of Environmental Legislators.

Meanwhile, President Donald Trump has taken steps that may hinder climate goals, instructing the Attorney General to restrict state climate policies and advocating for increased coal production to meet the demands of AI-driven data centers.

Despite these concerns, tech companies argue that data centers are vital for numerous everyday functions, from online shopping to remote work, while also contributing to local job creation and tax revenues.

The surge in electricity demand is part of a broader trend, as electric vehicles and the electrification of home appliances are predicted to further escalate power consumption. Industry leaders contend that singling out data centers is unjust, given the diverse energy demands across various sectors.

Virginia has emerged as a focal point for this issue, hosting the highest concentration of data centers in the world. A recent state-commissioned study indicated that while data centers currently contribute their fair share for electricity, projected future demands could significantly hike energy costs for all consumers. Researchers forecast an alarming 183% increase in energy usage attributed to data centers by 2040, compared to a mere 15% growth without new installations.

Amid rising concerns, State Delegate Rip Sullivan highlighted the risks posed by unchecked energy demand, suggesting that it could quickly raise rates for consumers. He introduced a bill to impose energy efficiency standards for data centers aiming for tax exemptions, though it did not progress in the current session. Virginia legislators have since directed regulators to assess whether data centers should fall under a unique rate category to protect regular consumers from the costs associated with serving these facilities.

Other states are also exploring similar legislative actions. Proponents believe this approach could mitigate cost burdens on residential customers, while industry advocates argue that regulatory bodies should determine the specifics rather than lawmakers.

As the demand for electricity escalates, states that previously offered generous incentives to attract data centers are now reassessing these strategies, with many reporting negative impacts on consumer rates. Georgia state Senator Chuck Hufstetler indicated that electric customers have experienced multiple rate hikes recently, and he is pushing for measures to ensure data centers bear their share of electricity costs.

Consumer advocates are urging states to reevaluate these incentives, asserting that many data centers do not generate enough tax revenue to offset their tax breaks. Similarly, Oregon is witnessing rapid data center growth that is beginning to affect residential ratepayers, prompting local legislators to propose separating large energy users into their own rate categories.

The conversation extends beyond state lines, with Utah adopting legislation enabling large customers to negotiate unique contracts with utilities, designed to shield household ratepayers from additional costs. However, as industry growth calls for substantial capital investments, experts caution that typical models for spreading costs may not be effective in this context.

Total energy requirements are likely to see a marked increase, driven by factors such as artificial intelligence, emphasizing the urgency of a comprehensive strategy to balance growth and consumer costs. As competition among states intensifies for data center investments, a measured, sustainable approach to energy management will be crucial.