Electricity prices outpace inflation, voter patience

By EPN Staff

Electricity prices are rising fast, outpacing inflation and fueling voter frustration. A confluence of factors – generational upgrades to the grid, booming demand from AI data centers, and rising natural gas costs tied to exports – are all playing a role. 

Electricity prices – which closely tracked overall inflation from 2013 to 2023 – are now rising twice as fast as inflation.

Between 2009 and 2020, average U.S. retail power prices rose by 12%, but are up 36% since, Wood Mackenzie energy analyst Ed Crooks said in a recent column, adding, “Politicians have taken notice.”

Why it matters

Electricity costs are drawing outsized attention in November’s major gubernatorial races. 

"This is the first time I've really seen energy as part of the conversation during election season," former Republican state lawmaker and current director of Virginia's Department of Energy Glenn Davis said, according to Axios.

Virginia:

• Former Rep. Abigail Spanberger, D-Va., wants to rejoin the Regional Greenhouse Gas Initiative (RGGI), a cap-and-trade program that penalizes power plants for CO2 emissions, while blaming the Trump administration for cutting green energy subsidies and data centers for not paying their “fair share.”
• Republican Lt. Gov. Winsome Earle-Sears denounced RGGI as an energy tax that drove up costs while electric generation dropped when Virginia participated. She favors an “all of the above” energy approach, saying:

“Under my administration, we will open Virginia to all kinds of energy and give consumers a choice instead of taking it away. Oil, natural gas, small modular nuclear reactors, biomass, and renewable energy all have a place in our dynamic future. More supply means lower prices and thousands more jobs.” 

• Virginia has the added challenge of slowing price increases while hosting the world’s largest data center market.

New Jersey:

• Democratic candidate, Rep. Mikie Sherrill, promised to freeze rates.
• Republican Jack Ciattarelli said his opponent has been a “lockstep supporter of [current N.J. Democrat Gov.] Phil Murphy’s failed energy policies,” adding:

“When I’m Governor, things are going to change. I’ll ban offshore wind and diversify our energy sources in New Jersey to once again include natural gas and nuclear,” he said. “I’ll rewrite our master plan and deliver safe, clean, and sustainable energy to everyone in our state at a price you can afford.”

The bigger picture

Crooks warned there may not be much politicians can do in the near term.

“The upward pressure on prices is set to continue,” he wrote. “In fact, some of the drivers expected to push prices higher over the coming decades are only just starting to take effect.”

Transmission upgrades have been one of the biggest cost drivers of the last decade.

Investor-owned utilities are spending like never before. The Edison Electric Institute said grid investments hit $178.2 billion in 2024 – marking 13 straight years of record spending – and $1.3 trillion over the past decade. $1.1 trillion more is expected through 2029 to meet demand from AI, data centers, industrial reshoring, and broader electrification.

Data center demand will push utility companies to add generation. The Department of Energy said at the end of 2024 that data center load growth had tripled over the previous decade and could double or triple again by 2028.

In August, Monitoring Analytics, which covers the nation's largest power grid in PJM, flagged “tight conditions” at the grid driven by new data center loads. The group said data centers increased costs on the grid by $9.3 billion and suggested requiring new large-load users to bring their own new generation instead of relying on the grid at large.