Why Are Electricity Bills So High?
Why Are Electricity Bills So High?
Rising Demand from Data Centers Is Frequently Cited for Rising Energy Costs, But Is That the Real Reason Why?
Story and Research by
Catherine Morehouse Gernes
Concept, Design, and Engineering by
Arjun Kakkar, Florina Sutanto, MaSara Myers, and Sindy Huang
Let’s start with your take.
Let’s start with your take.
Question 1 of 3
Have you seen your electricity bill increase within the last two years?
Select one to continue
Grid Infrastructure
Introduction
Case Studies
Grid Infrastructure in Kentucky
Utilities in Kentucky — including Kentucky Power (KU) and Louisville Gas and Electric and Kentucky Utilities (LG&E) — have filed a total of $400 million in rate increase requests over the last two years, impacting at least 1.4 million customers across the state.
LG&E and KU serve 1.3 million Kentuckians. The utility was approved to recover $233 million in costs from customers across its gas and electric services.
Among the drivers the utility cites for the quarter billion dollar fund? Infrastructure that’s nearing 100 years old.
LG&E and KU estimate that more than half of its wooden transmission poles are over 60 years old, and note that it is still operating infrastructure built in the 1920s.
$400 M
in rate increase requests since 2024
While LG&E and KU continuously invest in their electric transmission and distribution systems, some equipment on the systems still dates to the 1920s and is reaching the end of its life, posing a significant risk to system reliability.
How Utility Regulation Works
Most utilities across the country are what’s known as a “natural monopoly,” which means they are granted control over a certain territory without any threat of competition in exchange for state regulatory oversight.
This makes many of us who pay our electricity bills “captive ratepayers,” meaning we don’t have a choice in who provides us power.
To protect those ratepayers, each state has a regulatory body known as the “Public Utilities Commission” or “Public Service Commission” whose responsibility is to protect consumers from paying too much for power. Their job is to ensure that every dollar a utility spends is used prudently and provides some wider benefit to the customers.
How It Impacts Your Bill
LG&E and KU originally asked the Kentucky PSC for a combined $387 million through what’s known as a rate case proceeding. This process requires utilities to prove that the money they want to spend — and recover from customer bills — is absolutely necessary in order to maintain safe, reliable, and affordable service.
In order for the commission to determine whether those costs make sense, the utility must provide justifications for increases on the following:
- Operating costs: evidence of how much it costs to run the system; and
- Guaranteed Rate of Return: the majority of U.S. utilities are public companies owned by investors, so in order to stay financially viable regulators must guarantee investors a rate of return. Utilities can earn this return on capital expenditures, which tends to incentivize those investments.
This latter number is often the most heavily-debated. In this case, the utility requested 9.9% — slightly above the U.S. average — meaning that the utility can recover nearly 10% of everything it spends as a profit.
Rate cases are public proceedings, which means interested parties including state officials, consumer advocates, environmentalists, and others can weigh in for or against utility requests.
In this case, there was a wide array of intervenors — ranging from the Kentucky attorney general’s office, the Sierra Club, local governments and businesses, Walmart, and local solar advocates.
Intervenors requested more data from the utility, including a more detailed accounting of the utility’s spending, its future plans for aging coal plants in the state, and how the company’s rate increases compared to national averages.
Where Is This Case Now?
After months of back and forth filings, the utility reached a settlement with intervenors in October, 2025, to recover $235 million instead of the original $387 million.
In its final order on the case, the Kentucky PSC approved $233 million of that spending and set the return rate at 9.8%. Some parties, including the Sierra Club, local solar advocates, and others are continuing to challenge the order, hoping for a rehearing.
60% | $233M
approved, at a return rate of 9.8%
So how do the other drivers work?
Select a new case to learn more how different factors are affecting your energy bill
There is No Single Driver of Energy Cost Increases
There is No Single Driver of Energy Cost Increases
These overlapping factors are common in utility cases, and make it nearly impossible to pin down a single driver of electricity rate increases in a given state.
As you explore the map, notice how each state has multiple drivers—and think about how one factor might intensify the impacts of another.
Rate increase requests by state
Number of filings
Top Drivers
Economic Pressures
Profit/Revenue (25) · O&M Costs (24) · Inflation (22) · Under-recovery (8) · Demand Reduction (4)
51 citations
Grid Infrastructure
Distribution (25) · Aging (21) · Transmission (20) · Modernization (13) · Security (6)
43 citations
Energy Resources
New Investment (21) · Plant Upgrades (10) · Fuel Costs (10) · Energy Efficiency (5) · Retirements (3) · Other (1)
41 citations
Resilience and Recovery
Other Weather (22) · Wildfires (13) · Hurricanes (3) · Winter Storms (3)
39 citations
Demand Growth
Data Centers (6) · Electrification (3) · Population (3) · Unspecified (2)
13 citations
Other
Other (11)
11 citations
These factors tend to compound because utilities don’t build infrastructure in a vacuum.
These factors tend to compound because utilities don’t build infrastructure in a vacuum.
New transmission and distribution infrastructure, power plants, and grid technology are often necessary investments as populations climb in a given territory, or as local economies grow—including through massive new infrastructure like data centers and manufacturing hubs. Meanwhile, building new grid infrastructure is more expensive than ever as inflation sends the costs of labor and materials skyrocketing.
At the same time, the need to replace aging grid infrastructure becomes more urgent as climate change worsens extreme weather impacts, which wreak havoc on our energy system. Hurricane-force winds can easily snap wooden poles and knock down overhead wires, and an increased prevalence of these storms might require utilities to invest in more resilient, climate-proof infrastructure to keep the lights on.
A single downed power line, meanwhile, can spark wildfires that destroy entire communities—a devastating consequence that Western states in particular have felt acutely in recent years. As drought conditions worsen wildfire risks across the country, utilities might need to spend more on public safety protocols, technology that can more quickly detect downed power lines, or basic maintenance costs like cutting branches around exposed wires.
Utilities are projected to invest
$1.4 Trillion
in capital expenditures through 2030
All of those drivers are exacerbated by a utility business model that prioritizes spending on new infrastructure—which earns a guaranteed rate of return—over more efficient solutions that don’t guarantee the same profit.
That spending is only expected to rise. Utilities are projected to invest $1.4 trillion in capital expenditures through 2030—and residential customers could end up footing the bill for nearly half that planned spending, according to nonprofit consumer education group PowerLines.
As a result, the aggregated effects of these factors have sent monthly electricity bills skyrocketing across the country and requests for utility rate increases to pile up at state regulatory commissions.
Rising demand from data centers is frequently cited as a primary driver of rising energy costs. But as the data shows, the factors driving most of these rate increases far predate the boom in data center development, indicating that there is more to rising costs than just a single factor.
Regional breakdown of requests
In the long run, if not handled effectively, rising demand for electricity certainly threatens to worsen the growing energy affordability crisis. But without addressing the underlying structural issues driving cost increases today, policymakers risk missing the bigger picture—and consumers will end up paying the price.
Conclusion
What Policy Solutions Exist?
What Policy Solutions Exist?
While no single policy lever can halt the complex factors driving rising energy costs, several approaches see widespread expert support.
Streamline the process for new energy generation
Streamline the process for new energy generation
One solution that continues to bedevil lawmakers, despite bipartisan interest, is any effort to streamline the years-long process for approving new interstate lines and connecting new energy generation to the grid. Unlocking that extra power system capacity through a more efficient transmission system could reduce bottlenecks and bring cheaper power to more consumers.
Incentivize commercial and industrial users to use less power
Incentivize commercial and industrial users to use less power
Programs known as “demand response” incentivize large commercial and industrial users to use less power during times when grid stress is highest and can relieve system pressure at critical moments. Some states are also exploring ways to ensure large customers like data centers pay directly for the extra grid infrastructure needed to provide them power.
Enhance grid technologies
Enhance grid technologies
There is also growing interest in “grid enhancing technologies” which are low-cost technology solutions that can squeeze more power out of the existing grid system, reducing the amount of new infrastructure needed. Improving how we deploy technology on the grid system has the potential to save consumers up to $170 billion per year, according to the consulting firm Brattle Group. Policymakers should ensure the regulatory system is set up to incentivize utilities to invest in these more efficient solutions.
Address the underlying tension of utility regulatory incentives
Address the underlying tension of utility regulatory incentives
Fundamentally, policy changes are most effective when they address the underlying tension dictating the utility regulatory process—power companies are incentivized to spend big on new, large infrastructure, rather than squeezing more out of the existing grid system. Addressing this contradiction between what’s best for the utility’s bottom line and what’s best for the consumer is key to fighting the growing energy affordability crisis.
Methodology
Methodology
We assessed investor-owned utility rate request filings across all 50 states starting from the first quarter of 2025 and ending in the second quarter of 2026. Under those parameters, a few states are left off the list:
Iowa’s last rate case was in 2024.
Alabama adjusts rates automatically, and has not had a formal rate case hearing since 1982. The utility last raised rates in 2024, and in 2025 regulators approved a proposal to freeze rates through 2027.
Nebraska is almost entirely run by public power, which differs from the private company structure under which the majority of U.S. utilities operate.
In assessing utility filings, we categorized drivers of quarterly rate requests across five main categories — economic pressures, grid infrastructure, energy resources, resilience and recovery, and demand growth. From there, we sorted each category into subdrivers, as detailed above. Rates are assessed based on the amount requested by utilities; as noted in the story, the amount actually approved can vary widely based on the outcome of a given regulatory proceeding.