From Bloomberg Opinion, July 17:
Power costs rose twice as fast as overall inflation in June and are consuming an increasing share of disposable personal income.
President Donald Trump, like many Americans, has something of an obsession with gasoline prices. He might be better off focusing on another cost with which Americans are regularly confronted: electricity bills.
The electricity component of the Consumer Price Index was up 5.8% in June, year over year. This was the third month in a row where electricity came in above the broad inflation rate and marked an acceleration in that trend, rising to more than double the CPI’s 2.7%. Meanwhile, although Trump has a habit of citing fantasy sub-$2 gasoline prices, that inflation component just registered its 13th straight month of year-over-year declines. Looking at energy costs as a share of disposable personal income, gasoline took 1.59% compared with 1.15% for electricity in May (the latest month of available data), the narrowest spread in more than four years. Rather than pump prices, plug prices look more ominous....
***
.... In part, this reflects an unusually warm June keeping air conditioners cranked up, plus higher fuel costs. Natural gas-fired generation tends to set the wholesale electricity price, and both gas futures and power plant fuel costs have bounced back from very low levels a year ago.
But the big driver of the utility costs that feed into bills is spending on the grid, which tends to be stickier, too. This is all the more salient given Trump’s recent visit to Pennsylvania to tout multibillion-dollar investments in datacenters there. Winning the race for artificial intelligence is a core element of the administration’s focus on “energy dominance.” US power demand is expected to rise quickly after lying flat for most of the past two decades, with datacenters playing a leading role.
Building the necessary generating capacity, and associated grid infrastructure, is expensive. Grids are quasi-socialist, spreading charges more or less evenly across customers with sometimes very different costs of service. Understandably, your average householder is wary of subsidizing the gigawatt-sized ambitions of the likes of Mark Zuckerberg. Moreover, the AI hype phase we are currently in recalls the early 2000s internet bubble, with its highly inaccurate associated energy projections. (Guess who gets stuck with stranded costs for grid capacity that’s built and not used.) Andy DeVries, an analyst at CreditSights, notes that projections of power demand in 2030 have stopped growing since the DeepSeek shock in late January reminded everyone about the role of efficiency.
In response, a number of state regulators and utilities have proposed special tariffs for datacenter operators to ensure their deep pockets absorb the costs of hooking up large loads to the grid, including any stranded costs. Hyperscalers are also signing long-term contracts to underwrite new power plants and making preliminary moves to encourage new nuclear power development.
Yet these efforts won’t be sufficient to tamp down costs entirely. The datacenter shock is hitting a grid that was already under strain, in part because of the sort of extreme weather events that climate change will exacerbate, regardless of Republican ambivalence on the topic. Hugh Wynne, an analyst at Sector and Sovereign Research LLC, points out that the North American Electric Reliability Corporation assesses six out of the 13 US regions it tracks as facing reliability risks linked to potential gas outages in severe winter weather. These include large grids like the main one in Texas, which failed for that reason in 2021, the Midcontinent Independent System Operator network covering much of the Midwest, and the huge PJM grid, which includes Pennsylvania.
The structural requirement for grid renewal burst into the open in PJM last summer, when a capacity auction — designed to incentivize power plants to remain open or get built — returned an 833% price increase. These charges, insurance against blackouts essentially, get spread across bills. The latest auction concluded the same day Trump was talking gigawatts in Pennsylvania, with results due next week....
....MORE
HT:
CHART OF THE DAY: America has an electricity problem.
— Javier Blas (@JavierBlas) July 17, 2025
Retail power costs in the US are rising very, very quickly (>35% over the last 5 years) — in some part due to expensive grid investment.
My @Opinion colleague @liamdenning has the details here: https://t.co/wtal8GPFXW pic.twitter.com/HOrhBtaRw1
By the same writer at Bloomberg Opinion:
A $12 Billion Window Into AI’s Race for Power: Liam Denning
