How Every State Can Tackle Electricity Affordability

Our recent modeling shows that immediate action requiring data centers to pay for necessary grid upgrades and bring their own new, clean energy is one of the fastest, most effective ways to save ratepayers money. Data centers accounted for 4 percent of US electricity demand in 2024, but that number is projected to more than double by 2030. In some parts of the country, the increase is far greater. The Mid-Atlantic and Midwest states, whose grid is managed by PJM Interconnection, have already seen electric bills increase up to 30 percent, mostly due to projected data center demand.

States should establish separate electricity rates for data centers, called “large load tariffs,” that require them to pay for their energy needs and grid upgrades for at least 10 or 15 years. States also must address the supply-demand imbalance leading to higher bills by requiring data centers to bring their own new, clean energy. Similarly, states can require data centers to contribute to community benefit funds that support low-income ratepayer affordability, clean energy or transmission deployment, or other local benefit programs. Big tech companies have significant financial resources and should be covering their energy needs—not passing costs onto the rest of us.

States should explore using creative financial tools to prevent near-term rate increases. Some states, such as Maryland, have sent direct rebate checks to customers to defray bill increases. Governor Sherrill in New Jersey has directed the Board of Public Utilities to explore bill credits, and is also exploring additional relief funded through Regional Greenhouse Gas Initiative revenues and penalties paid by utilities that fail to meet the state’s clean energy standard. Pennsylvania has pursued price caps in regional energy markets. Near-term relief is essential to show voters that states take energy affordability seriously and are acting to make their lives easier. However, as states pursue options for financing relief, clean energy funds should be a source of last resort, as programs like RGGI and similar state funds elsewhere provide vital support for investments that can lower costs, like energy efficiency and weatherization. First, states should attempt to secure utility commitments, implement bill credits, and explore any additional sources of revenue available. In the long-run, the federal government may be better positioned than states to fund more widespread ratepayer relief.

The best way to address new electricity demand is new supply. The cheapest forms of new power available today are renewable energy and battery storage—and they happen to be the fastest projects to build. New gas plants, suffering from ongoing turbine shortages, are unlikely to supply new power for seven years, meaning high electricity prices until the 2030s. Meanwhile, wind, solar, storage, and demand-side solutions like flexibility, efficiency, and virtual power plants can be deployed faster—in a matter of months or a few years at most.

But given the cost crisis, more work needs to be done to bring power online even faster. States must expedite siting and permitting for utility-scale solar, storage, batteries, and transmission; automate permitting for rooftop solar and storage; require utilities to create compensation programs for customer-owned virtual power plants; and ensure that utilities are deploying advanced transmission technologies, like advanced conductors and grid-enhancing technologies, that are faster than building new transmission lines. Through these policies, states can deploy cheap, clean energy quickly and prevent the  supply-demand imbalance driving record-high prices.

Many utilities have no incentive to control spending, because they earn a return on capital investments, known as “return on equity,” often as high as 10 percent. This rate is far above the private cost of capital, leading utilities to overinvest and “gold plate” their investments to maximize shareholder returns at ratepayers’ expense. By lowering utilities’ return on equity  to reflect the actual private cost of capital, states can protect customers from unnecessarily high bills. States can also pursue performance-based regulation, in which utilities earn revenue based on results rather than the scale of their investments, to reduce the misaligned incentives that drive overspending.

Finally, states should address grid resilience and extreme weather events head-on, rather than allowing those costs to pass through to utility bills. Extreme weather events, including wildfires, hurricanes, and other storms, are increasing electric bills. Currently, wildfire insurance costs, liability payments for utility-caused fires, and storm recovery are all funded via electricity rates. But funding resilience through electric bills instead of the tax base is regressive, and as climate change exacerbates extreme weather, rates will only get higher. That will make it harder to electrify everything and run our economy off of clean electricity. Instead, states should establish wildfire and extreme weather funds that invest in upfront resilience and cover disaster recovery costs, rather than sticking the bill with ratepayers and deepening the affordability crisis.