Amid consumer and political backlash against the artificial intelligence data center boom, utilities are demanding $31 billion in rate hikes nationwide in 2025, a record high and more than double the 2024 record level, which could further lead to future cost increases, according to a new report released Jan. 29 by nonprofit PowerLines.
While aging infrastructure, extreme weather events and soaring natural gas prices are the main reasons electricity prices have risen 40% since 2001, Growing demand for electricity A surge in data center construction has begun to push rates even higher. According to the U.S. Department of Energy, residential retail electricity prices will increase by 7% in 2025 alone, while piped gas prices increased by 11% last year.
Charles Hua, executive director of PowerLines, said most of the rate hikes requested by utilities have already been approved, but nearly half still have to go into 2026 and will likely come under greater scrutiny from state regulators, especially as November’s crucial midterm elections approach.
“A lot of these increases haven’t really touched people’s wallets yet,” Hua said. “This suggests that utility bills are likely to continue to rise through 2026 unless some significant radical action is taken.”
Wall Street is paying attention, too.
Jefferies power and utilities analyst Julien Dumoulin-Smith believes the industry’s 2026 narrative is shifting from “capex growth at all costs” to “capex growth with customer permission” due to public backlash.
“We believe it is no longer enough for utilities to simply say they care about affordability; regulators and investors will demand evidence of proactive behavior,” he added. “Utilities that fail to demonstrate specific mitigation measures face reputational risk and could result in a credibility discount on valuations.”
Hua said data centers are only a small part of the price increases over the past few years, but they could be the main cause of price increases in the next five years. The more hyperscalers agree to pay their own generation and transmission costs, the less impact taxpayers will have.
And if generation is overbuilt, ratepayers could be on the hook for decades to come.
“This is the new electricity politics, electricity is the new egg (price),” Hua said.
“Electricity and (gas) natural gas are now the two fastest drivers of inflation,” Hua said. “It’s not just a little bit more, it’s a lot more than (people) are used to seeing. That contributes to the frustration we’re seeing among the public and consumers.”
Of the $31 billion in rate hike requests, the South led the nation with $14.3 billion, with Florida recording the largest single rate hike request in U.S. history. Florida Power & Light proposed raising rates by $9.8 billion over four years, but ultimately reached a compromise with a smaller but still record rate increase of $6.9 billion. The utility argued that many ratepayers’ average monthly bills would only increase by about 2% by 2026.
Elsewhere, the Northeast and West regions each accounted for $6.5 billion in requests. The Midwest saw the least activity, requesting $3.2 billion in rate hikes. Maine, for example, has rejected a $400 million rate hike, so dissent is spreading.
Address the “Root Cause”
While data centers dominate the discussion, Hua believes the AI boom is just a symptom of the problem, but that the “root cause” is the way utilities are financially rewarded.
Essentially, utilities profit from the return on investment and have an incentive to invest in and build more generation and transmission facilities. With electricity demand essentially flat for nearly two decades, this kind of crazy growth over the years is hard to justify.
“They are not making any profits by making the grid more efficient,” said Hua, who believes reforms are needed to incentivize efficiency improvements. “So they’re constantly trying to build new infrastructure. That’s kind of their motivation and that’s their job.”
The boom in artificial intelligence is “the perfect reason for them to build new power plants.”
“This is a once-in-a-lifetime opportunity where you have a clear stakeholder and you can justify utility spending,” Hua said. “Most importantly, now is the time they can demonstrate to regulators why this is happening.”
That’s where each state’s little-known Public Service Commission comes into play. There are approximately 200 public service commissioners nationwide, equivalent to about $200 billion in annual utility spending—roughly one commissioner for every $1 billion in spending. Georgia, for example, made headlines in November when all of its current commissioners were voted out by upstart Democrats amid an outcry over utility bills.
As scrutiny intensifies, will commissioners across the country be more willing to comply with utility company demands in 2026 and beyond?
“The bottom line is, do regulators trust what utilities are paying?” Hua said. “That’s where the rubber hits the road.”