How Long Before Consumers Rebel Against Higher Electricity Rates Driven by Data Center Consumption?

It has been a couple of decades since the “rate base” was a key driver of revenues for U.S. telcos, in large part because the services affected by the rate base have declined so much (voice services). 

But the rate base is going to continue to affect consumer electricity prices for the foreseeable future, as additional power generation and transmission capacity is built to support higher demand for power to support data centers and artificial intelligence operations. 

In some states, such as Virginia, it is possible that rates could rise substantially, as much as 70 percent from current levels. California and Texas are additional states where price hikes could be higher.  

But those sorts of shocks are virtually certain to raise calls for reform of the rate base rules, as it is going to be said, with good reason, that consumers are subsidizing the operations of data center owners and operators. 

But that has been a rare approach. Past rate base reforms have rarely directly targeted large customer-driven infrastructure costs when allocating costs among customer classes. 

Traditionally, the costs of new infrastructure investments (generation, transmission, or distribution) have been spread across all ratepayers through general rates, regardless of which customer category caused the need for the investment.

Many observers and electricity customers will not be aware of such precedents, and are certain to be shocked by the growing cost of electricity. 

The rate base is the total value of a utility’s assets (power plants, transmission lines, and distribution infrastructure) used to provide service to customers, and forms the basis for setting the rates that utilities can charge their customers.

So the basic formula for setting consumer prices is the rate base times the allowed rate of return) plus operating expenses, with a return for investors as well, as a practical matter. 

Data centers matter because the common costs of new generation capacity and transmission can be charged, and will be charged, to all customers. 

If data centers currently account for four percent to five percent  of U.S. electricity consumption, but grow to 12 percent  by 2028, and current rate base rules do not change, that cost will be borne by all ratepayers.