Silicon Valley Wants to put its Power Bill on Your Tab

By Leonard Hyman & William Tilles - Sep 17, 2025

• In the old days, big factories joined the grid and everyone’s rates fell thanks to economies of scale; that era is over.
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• AI/data centers need massive new power and water, forcing pricey grid upgrades that utilities will likely spread across all customers—think ~15% higher bills, especially for households.
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• Unless AI’s benefits are guaranteed and broadly shared, Big Tech should cover its own electricity tab, not socialize it through your bill.
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That seemed to be the argument. The academic patiently explained to the TV interviewer that cost of electricity would rise for all consumers because putting those big AI centers into operation would raise costs for the grid, and everyone has to share grid costs. That’s the way it always worked. That’s the way it works, so tighten your belt and stop complaining. 

Actually that was not how he put it, but you get the idea. So, let’s go back in time when large industrial users of electricity produced their own, because that was cheaper than buying from the local utility. They began to buy from the utility when utility power looked like a better buy, and it became in part a better buy because they switched to the utility. Large industrial power users added volume to the utility grid that enabled the utility to take advantage of economies of scale. The utility’s overall cost per unit fell for all customers. It was a win-win situation, to use an overused term. Later on, in the 1940s to 1960s, utilities and local governments pursued a policy of industrial development for the service territory. They wanted industry to move in because the new factory hired thousands of workers, paid taxes, and the additional demand for electricity enabled the utility to reach greater economies of scale, which lowered power prices. Everyone’s electric rates fell as a result. A true Goldilocks outcome.

That picture changed in the 1970s and 1980s when the electricity industry ran out of economies of scale, and double digit inflation raised both capital and operating costs dramatically, thanks in part to Middle East oil embargoes. And the cost of serving new electric load rose significantly over the cost of serving old load. In economic parlance, incremental cost exceeded average cost. At that point, electric companies started to preach the virtues of conservation, of more efficient use of electricity. They actually paid people to use less at strategic times.

Fast forward. Two decades of slow to no growth in electrical demand dampened interest in these matters. Now, huge corporations with immense wealth want to erect AI and data centers that will, over a short time, put immense pressure on local electricity and water resources. The utilities affected will have to put into service new assets that cost many times the cost of existing assets. We suspect that most of these utilities may already be operating at the limits of economies of scale, so we don’t expect to see cost reductions from added volume. Roughly speaking, we would expect the AI boom, if it materializes, to raise the price of electricity, on average, by at least 15%, and possibly more for residential customers who won’t get industrial discounts.

To put the case simply, in the past, the electric industry socialized the costs of new customers, especially large industrial customers, because doing so attracted new loads and that reduced per unit costs for everyone. Society benefited along with big power users. In the case of AI today, that means socializing large incremental costs and there are no savings. Socializing the costs incurred to serve loads like AI will raise costs for everyone. If you believe that AI will reduce economic costs for everyone in society, and cure numerous diseases, and the benevolent developers of AI will share those cost reductions and health benefits with the general public rather than pocket and monetize those goodies, then you might make a case to socialize AI’s electricity costs. Presumably, you also believe in the tooth fairy. We, on the other hand, don’t want to share our electric bills. They have enough money to pay their own.

By Leonard Hyman and William Tilles for Oilprice.com