Residential Electricity Increases Over 200% In Some Areas As AI Comes Online

AI data centers have pushed wholesale electricity prices by as much as double over five years in some parts of the country. Bloomberg puts the number at 267% in one area where a large number of data centers operate

The primary reason for price increases in some cases is clear. 39% of electricity consumed goes to AI data centers in Virginia, according to Bloomberg analysis. The state has a higher concentration of data centers than any other state. The figure in Oregon is 32%. It is in double digits in several other states, which include Iowa, Nevada, Utah, Nebraska, Arizona, and Wyoming. While the analysis does not explicitly make this point, AI data center operators often seek areas with low population density, where there is likely to be minimal competition with residential demand. 

It is too early to say whether competition for electricity will become a tug-of-war over who gets metered electricity. In theory, this could trigger brownouts. Perhaps as important, if the current administration continues its drive to provide electricity for AI, the bills will continue to rise.

The price of electricity has become a CPI problem. Inflation has fallen from over 9% in mid-2022 to 2.7% recently. Part of that drop is due to lower energy prices, which also include a decrease in the price of oil and gas. The price to heat homes has been fairly steady recently. 

CPI Could Rise

Inflation has begun to increase, but it has not yet had an impact on electricity prices. Tariffs are expected to move inflation rates by as much as 1% as measured by the CPI. Another fraction of a percent caused by electricity moves the CPI back in the direction of 4%. At that level, consumer spending often weakens, and with it, GDP. 

The debate over the use and supply of electricity has already moved to the political realm, and it must. This debate not only involves money; it involves a commodity that is an irreplaceable part of everyday life. The debate will move to one of sacrifice if electricity generation facilities cannot be built out at an unprecedented pace. AI companies will argue that the technology is the largest advance of man-made tools in history. They will also argue that AI has been created for the common good. At the other end of the spectrum is whether people can withstand rising inflation for what could be many years. This issue will be among the central themes of the next presidential election.

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