Report: Who is Paying for Data Center Grid Updates?

As the demand for AI data centers continues to grow, a new report from Harvard’s Electricity Law Institute illustrates concerns about who ultimately ends up bearing the financial burden of supporting infrastructure upgrades for these extremely energy-intensive facilities.

Data centers, which power everything from AI to cloud and quantum computing, require massive amounts of electricity to complete these complex tasks, ultimately requiring expensive, large-scale grid infrastructure upgrades.

In the traditional utility pricing model, the costs associated with maintaining and expanding the electrical grid are distributed among all ratepayers. This means that residential, commercial, and industrial customers collectively share the financial responsibility for infrastructure investments, regardless of their individual consumption levels.

This approach ensures that the expenses for grid reliability and expansion are not disproportionately placed on any single group. However, with the recent demand for data centers rising significantly, a large portion of these costs could be passed down to residential utility customers, as opposed to the tech companies that use vast amounts of electricity and profit the most from the enhanced infrastructure.

The recent report, “Extracting Profits from the Public: How Utility Ratepayers Are Paying for Big Tech’s Power,” highlights a particular issue: the current utility pricing model doesn't work well for these sorts of massive improvements that data centers require. While tech companies make massive profits from the services these centers provide, local utility customers inevitably end up paying for the grid expansions required to support these power-hungry facilities; infrastructure improvements from which they will likely not reap the benefits, considering the amount of energy required to run a data center.

Many large industrial users, such as data centers, are often able to negotiate special rate agreements for utilities. These contracts can provide them with reduced rates or other favorable terms, reflecting their substantial and consistent energy consumption. While these arrangements benefit large customers, they can lead to a situation where the costs of necessary infrastructure upgrades to support these intensive operations are shifted onto smaller consumers, the report argues. This cost-shifting occurs because the utility must still recover the total expenses of grid enhancements, leading to higher rates for residential and small business customers.

For the rapidly growing green energy sector, this also poses a challenge. The rising costs for utility customers, as well as the growing demand for renewable energy, could possibly slow the rate at which the country moves toward carbon neutrality goals. It may also prevent some energy efficiency programs from moving forward if utilities are stretched thin.

Pennsylvania Gov.Josh Shapiro has already expressed some concerns about the financial impact of data centers on Pennsylvania energy consumers. In December 2024, a complaint was filed with the Federal Energy Regulatory Commission (FERC) against PJM Interconnection, the regional grid operator, arguing that the rapid growth of data centers could lead to significant electricity price increases on an already outdated grid system.

To make things more equitable, the researchers recommend that new data centers take service under standard prices, rather than negotiating custom contracts, ensuring they pay their fair share. It also urges regulators to tighten oversight of rate deals and explore options like "energy parks," or independent power hubs to promote competition and protect ratepayers from subsidizing these special energy needs.