Electric bills are skyrocketing across the United States, with significant increases attributed to antiquated practices that compel consumers to subsidize costs for the grid connections used by tech giants. Our latest analysis reveals that in 2024 alone, consumers in seven states—Illinois, Maryland, New Jersey, Ohio, Pennsylvania, Virginia, and West Virginia—will bear an incredible $4.3 billion in charges.
The root of this issue lies in the staggering power demands of modern data centers. Many recently established centers possess the electricity requirements of entire small cities. Proposals for new data center campuses indicate power needs on par with the total output of electricity in some small states.
By examining planning documents across states within the jurisdiction of the PJM grid operator, I’ve identified 130 instances where electric utilities are connecting data centers to the grid using extremely expensive transmission lines, with these costs being imposed on consumers under outdated regulations. Most perspectives highlight this practice as morally wrong and a poor policy decision. Nevertheless, this method remains a standard operating procedure within the utility industry for typical expansions of transmission and distribution lines.
I hold great respect for the utility sector’s role in keeping the electricity flowing, yet this situation underscores the need for the old proverb, “With great power comes great responsibility” to be taken seriously. The regulations governing utility monopolies ought to ensure affordable and reliable service for consumers while offering predictable terms for utility companies. The data center boom presents a historic business opportunity for the electricity sector, and utility companies must acknowledge the risks to consumers stemming from this boom.
Utilities’ Inadequate Reforms
Across the nation, rising utility bills have alarmed consumers, yet utilities are responding with minimal reforms aimed at ensuring large data center clients cover their own costs. While the surge in electric demand from these centers leads to new expenses for power supplies (widely reported by the media) and costs associated with connecting them to the electricity grid (the focus of our analysis), recent reforms are merely designed to enforce minimum commitments from data centers for future payments and deposits spanning 10-15 years.
However, these reforms fail to alter who incurs the new costs. Expenses for both new power generation facilities and transmission infrastructure—including the connections to the data centers themselves—are ultimately borne by all customers of the respective utilities. Rate structures set by state and federal regulators have not adapted to reflect costs that result specifically from large-scale customers. Currently, cost assignment rests on outdated assumptions, evident in the graph below, showing the financial burden on all customers against the new costs attributed to significant data center connections shown in red.
The High Costs We Are Paying For
The staggering total of $4.3 billion in 2024 alone illustrates the financial burden of electric connections from existing transmission lines to data center facilities. These costs include direct connections, new transformers, and other infrastructure improvements, often amounting to between $25 million and $100 million for individual connections. The one-year expense totals for these seven states are depicted in Table 1 below.
Let’s delve into some specific findings.
Utilities within the PJM regional transmission organization maintain a brief snapshot of planned local transmission needs, which often include upgrades for customer service or the replacement of outdated equipment. For instance, an upgrade project in Maryland, near the Virginia state line, is detailed in the two slides from the utility companies below. (You can also access other utilities’ plans here.)
The first slide illustrates a need identified by the utility, with a tracking number marked at the top—a representation of a single customer who intends to utilize 300 MW (equal to a city’s electrical demand) as soon as possible.
The second slide explains how the utility plans to fulfill this customer’s request. The tracking number is consistent, and I have highlighted in yellow the illustration of this single new customer. Further down, descriptions indicate investments the utility will make for this customer, amounting to $20.8 million plus an additional $14.6 million, with new tracking identifiers for constructing these facilities. These tracking numbers, s3150.1 and s3150.2, will be included in the PJM Regional Transmission Expansion Plan as “Supplemental Projects.”
The Implications of Local Planning
When these direct connections for data centers are incorporated into the utility’s local transmission plans, they automatically become elements of the regional transmission expansion plan without undergoing thorough regulatory scrutiny. Moreover, this protocol permits the utility to include the associated costs in transmission rates. This practice of essentially automating approvals has incited controversy and demands for reform, and the rise in data center costs has only intensified these calls.
While the PJM process may offer more transparency than other regions, every utility possesses the ability to develop new transmission connections for new customers. This is a fundamental responsibility of electric companies. What distinguishes the current situation is the enormous size of these new customers and the astonishing costs tied to their connections. Their scale necessitates direct connections to the transmission system, a situation not typically contemplated by existing customer cost assignment regulations.
A $4 Billion Regulatory Loophole That Grows Each Year
A gap in regulatory jurisdiction allows these transmission costs to be bundled together, filed with the Federal Energy Regulatory Commission (FERC), and dispatched to state regulators as a singular cost. Consequently, detailed information regarding specific costs incurred due to individual customers is obscured. The states typically establish customer rules, whereas FERC only addresses wholesale customers, leaving retail customer needs inadequately addressed.
As these colossal new customers emerged in recent years, their associated costs were allocated without adhering to the principle of cost causation. Regulatory frameworks generally strive to allocate costs to entities that incite those costs—a principle that requires revision. Preliminary evaluations for the upcoming year suggest an additional $2.5 billion in costs arising from more data center connections in these seven states is anticipated, with many more projects currently underway.
Tracing the Flow of Costs
The utility procedure for transferring transmission costs to customer bills follows the pattern illustrated below. The projects indicated by the red arrows correspond to the projects discussed earlier, identified by tracking numbers on the left, with costs indicated on the right. This excerpt is from PJM’s 2024 Regional Transmission Expansion Plan, reflecting the utility’s local proposals.
When determining the annual costs for the utility’s transmission network, any expenses reflected in the Regional Transmission Expansion Plan are included, encompassing the costs tied to customer connections. This aggregate cost is transferred to the rates presented to customers at state utility commissions. Consequently, transmission costs are dispersed among all the customers of the utility, as depicted in the financial flow graph provided above.
This cost-sharing mechanism isn’t illegal; it simply reflects outdated practices. Unfortunately, the implications are undeniably severe. Wealthy corporations are establishing extraordinarily pricey data centers that we, the consumers, are effectively subsidizing. Our policy brief outlines this situation and offers recommendations to alter the allocation of new expenses to the customers causing these costs. This responsibility falls on the rate-setting utility commissions. The policy brief details where to find the necessary evidence to advocate for this change, as we urge regulators to recognize: data centers have the capacity to fund their own services.
The policy brief can be accessed here. Additionally, the accompanying appendix can be viewed here.
