Low-Energy Fridays: Why Are Electricity Rates Rising?

It’s all over the news—electricity prices are up. And there’s been plenty of finger-pointing, mostly at artificial intelligence (AI) and data centers but at renewable power policies, profit-minded utilities, and climate policies as well. Nationally, most of the rise in consumer prices over the past four years has been due to electric rates catching up with inflation, which does not suggest an energy crisis.

But 2025 is different. Utilities sought $29 billion in rate hikes so far this year—nearly double the 2024 pace—and average prices rose at about twice the rate of inflation in the first half of the year. Inflation accounts for a big part of the story, but not all of it.

National averages hide one trend pushing rates up: A growing proportion of consumer bills are going toward power lines and other equipment needed to deliver power. A recent study flagged local distribution spending as the fastest growing bill component overall, with long-distance transmission spending also growing. Put simply, it’s increasingly expensive to get electricity from where it’s generated to where it’s needed. At the same time, the cost of generating power has trended downward. Over the 10 years between 2015 and 2024, these two forces—higher delivery costs and lower generation costs—mostly balanced out to keep real prices flat overall.

National averages also conceal some significant differences among states that might not make sense at first glance. For example, while 26 of the 29 states with rising electricity use over the last decade saw electricity prices grow more slowly than the national average, 17 of the 22 states with falling power consumption saw their prices grow faster than the national average.

Some simple math explains this puzzling pattern. More people using more power spreads the growing costs of delivering power across more customers, thereby reducing the burden on each one. On the other hand, when customers consume less power, their share of the delivery cost must grow.

The data show a clear trend: States with growing consumption tend to have lower rates. This effect may explain why there’s no clear connection between growing data center power consumption in states and consumer rates in national data—at least not yet. For example, Virginia (the state with the largest concentration of data centers) continues to have rates below the national average.

Zooming in from national trends to individual states shows that regional conditions and state policies also influence prices. California utilities have faced significant costs from wildfires, which combine with costs coming from the state’s aggressive environmental policies to produce the highest state average. Meanwhile, New England states have seen a decrease in overall energy consumption, which pushes rates up when combined with state energy policy costs. The two states with the fastest rate of growth in consumption, North Dakota and New Mexico, had lower average rates in 2024 than in 2015 even before adjusting for inflation.

Renewable energy does not consistently drive rates higher. While critics claim that intermittent wind and solar increase electricity costs and proponents argue that subsidies reduce them, the data reveal a more complex pattern: States with strong renewable resources tend to see lower prices, while aggressive renewable mandates in areas with poor wind and solar resources push prices up.

Natural gas provides the largest share of power production nationwide (about 40 percent), so gas price changes can and do influence power prices. Gas prices jumped in 2022 after Russia’s invasion of Ukraine before falling in 2023. Electricity prices rose in 2022 but didn’t retreat much in 2023. The delay may come from the fact that big cost spikes are spread over several years to soften the shock, keeping bills elevated even after fuel prices fall.

Beginning in February 2025, the steady, inflation-shaped story gave way to something new. For the first time in years, electricity prices outpaced overall inflation for five consecutive months. That shift may mark a real break, but electricity prices dropped back alongside overall inflation in July and August. (September data will be released in a few days.)

Pending deeper study of price changes this year, the best explanation is not AI, renewables policies, or a sudden turn in fuel costs—it’s steady growth in delivery spending landing on uneven demand. When state usage grows, fixed costs are shared more broadly and rates rise more slowly; however, when usage shrinks, the math runs the other way.

Watch the wires. That’s where today’s bill pressure lives.