The states that saw the largest increase in electricity prices over the past five years were not states booming with new demand from industrial customers, such as Texas, but states where demand fell. Electricity prices rose 4.2% over the last year, outpacing broader inflation. The popular explanation for the rise in residential electricity prices is the growth of data centers, but state-level data say otherwise.
Lower-income Americans have the most to lose from ineffective energy policy. Households in the bottom 20% of income earners spend a median of nearly 10% of their income on energy, compared with 1.2% for the top 20% of income earners. According to the Census Bureau’s Household Pulse Survey, as of September 2024, 44% of adults with household incomes under $25,000 had been unable to pay an energy bill within the past year. In that same income band, 56%, more than 15 million adults, reported that they forwent basic household necessities to pay an energy bill.
Since January 2020, electricity prices have risen 43%, outpacing broader inflation at 28%. Electricity demand forecasts have accelerated since 2022, ending a decade and a half of flat growth. This demand is driven by data centers, reindustrialization, and electrification. Utilities’ forecasts suggest that the United States will need to add capacity at nearly twice the pace that it did over the last decade to meet demand and maintain reserve margins.
Texas and Virginia have been the top two destinations for new data centers. From 2019 to 2025, Texas’s electricity demand grew 21%, and real residential electricity prices increased by 4.5%. Over the same time period, Virginia’s demand grew 22%, and its real residential electricity prices rose by 0.5%. While both states saw their prices rise in real terms, both were below the 5.6% increase in the U.S. average real residential price.
The seven largest increases in electricity prices are all in states (and the District of Columbia) where demand fell. From 2019 to 2025, electricity demand in Maine fell by 5.9%, and real residential electricity prices rose by 23.3%. Similarly, New York saw its demand fall by 1.4%, and real electricity prices rose 16.8%. There are more extreme examples, such as California, which had the largest price increase in the nation and saw its demand fall by 5%, but in this case, wildfires have played a role in both reducing demand and imposing other costs onto ratepayers. States need to worry more about falling demand than rising demand.
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Rising electricity prices are partially driven by utilities’ investments to expand and maintain existing infrastructure. Investor-owned utilities invested $1.3 trillion (nominal) in total capital expenditures from 2015 to 2024. Now the bill is coming due. A utility’s rate base doesn’t shrink if customers use less electricity. The fixed costs of infrastructure investment will simply be spread over fewer kilowatt-hours of consumption. When demand falls, these costs fall harder on the families and businesses that stick around.
Data centers can raise household bills if states and grid planners get the policy wrong. PJM, the grid operator for 13 states, pays power generators in advance to ensure their customers will have power when they need it most. In its analysis of PJM’s capacity auction in December 2025, the Independent Market Monitor found that $6.2 billion of the $16.4 billion total, 38%, was attributable to new data center demand. The costs of large industrial customers are being socialized onto ratepayers to ensure PJM will have enough power. States should not turn away demand but instead require large industrial customers to bring their own supply or pay for any necessary new capacity.
Grant Dever is a visiting fellow at the Foundation for Research on Equal Opportunity.