What AI data centers are doing to your electric bill

Summary

Planet Money (NPR)

Episode: What AI data centers are doing to your electric bill
Date: December 20, 2025
Hosts: Keith Romer, Jeff Guo

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Episode Overview

This episode dives into how the explosive growth of AI data centers is influencing Americans’ electricity bills, using a case study in central Ohio. The Planet Money team investigates why residential electric rates are rising rapidly, who’s really to blame, and what’s happening behind the scenes in the power industry. The story follows Ken and Carol Apacki, retirees who have noticed a near-doubling in their electricity rate. The hosts trace the ripple effects of data center expansion from local distribution, to transmission, to the generation and market structure that determines electric prices.

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Key Discussion Points & Insights

1. Meet Ken and Carol: The Case of the Rising Electric Bill

• [02:32] Ken Apacki has meticulously tracked his electricity usage and cost since 2020 in a spreadsheet and noticed his rate nearly doubled from 11 cents to 19 cents/kWh over five years.
• [03:45] Ken’s theory: the construction of many new data centers in central Ohio is behind the increase. There are now about 130 data centers in the region.
• [04:11] Carol echoes what they’ve been hearing: rates are going up, the grid is stretched thin.

2. Data Centers’ Physical Impact on the Landscape

• [07:19–09:42] Keith, Ken, and Carol tour the countryside around Granville, Ohio. They see rapid transformations: fields converted to data center construction sites, endless rows of bland, massive buildings, new power lines, and substations.
  • “Every time we come, we see some new vast wasteland.” – Carol Apacki [09:34]
  • "It was just miles and miles of this." – Keith Romer [08:28]

3. The First Layer: Local Distribution & Utilities

• [10:34–15:56] Mark Ryder, President of AEP Ohio, explains:
  • The sheer scale: A new neighborhood might need 1 megawatt, but cluster data centers want 50–3,000 megawatts – the equivalent of an entire city’s demand.
    • “Just one of those bigger data center clusters … would use the same amount of electricity as the entire city of Fort Worth, Texas.” – Jeff Guo [11:32]
  • Utilities used to “socialize” the cost of grid upgrades across everyone. But massive data center requests threatened to burden households with higher rates, especially if projects stalled or failed.
  • AEP Ohio paused all new data center connections in 2023, creating new rules: Data centers now must pay for a bigger share (up to 85%) of capacity they request, post collateral, and prove they’re “real.”
    • “We had to flush out who’s real and who’s not. And you do that with collateral requirements. That’s big money.” – Mark Ryder [15:25]
• Outcome: New rules mean households pay for less of the new infrastructure, but still some. Experts estimate distribution accounts for only 10–20% of the recent price rise.

4. The Second Layer: Transmission

• [16:56–19:44] Kamran Ali, who oversees a multi-state transmission grid, likens the system to an interstate highway with color-coded voltage “lanes.” Massive new demand is driving up costs for regional high-voltage lines.
  • “It took us 100 years to get to 40,000 megawatt. We have currently signed agreements to bring on another 28,000 megawatts by 2030—in a span of five years.” – Kamran Ali [18:50]
• Transmission upgrades, recovered via federal rates, contribute less than 20% of the bill rise—so the bulk of the increase must be elsewhere.

5. The Biggest Layer: Generation & the Capacity Market

• [21:54–32:32] The largest driver is power generation, specifically a “capacity market” system intended to ensure enough supply in the future.
  • Brief history: Ohio broke up vertically-integrated utilities 25 years ago, seeking lower prices through competition.
  • Capacity Market Explained:
    • PJM, the grid operator for 20% of Americans, pays power plants to promise they'll be available in the future—NOT for the actual electricity, but for capacity to generate if ever needed.
    • “Local power distributors have to pay power plant operators just for existing, whether or not those plants ever generate any actual power to sell.” – Keith Romer [27:13]
  • The problem: With data center demand booming, there’s not enough generation being built. Capacity market prices shot up 10x in recent years, costing utilities (and ratepayers) $12 billion more in a single year—mostly paid to existing plants, not new ones.
    • “PJM’s prices for generation went up by a factor of 10.” – Kathy Kunkel [28:53]
    • “$12 billion extra dollars … just to guarantee that there would even be enough electricity to buy in the future.” – Keith Romer [29:01]
  • Why aren’t new power plants being built?
    • The market doesn’t guarantee stable, long-term income (producers fear prices may drop the next year).
    • Renewables like wind/solar count for less in capacity calculations, since they aren’t always “on.”
    • Shortages of key parts (like natural gas turbines); long delays to connect to the grid.
    • “So what used to be like a two, two and a half year wait time to get your turbine has now turned into a five or six year wait time.” – Kathy Kunkel [30:51]
  • So, residential customers are paying more—but they’re mostly rewarding pre-existing power plants, not incentivizing new ones.
    • “Most of the money from the capacity market just ends up going to existing power plants.” – Kathy Kunkel [31:55]
    • “The reason Ken and Carol’s electricity prices went up was mostly … the way the capacity market isn’t really working the way it is supposed to.” – Jeff Guo [32:01]

6. The Systemic Takeaway: Ordinary People Subsidizing Tech Expansion

• [32:51] “I think it's almost inevitable, the way that these structures are set up, that ordinary people are going to end up subsidizing the wealthiest industry in the world.” – Kathy Kunkel
• [33:05–33:30] Demand pressure from data centers is being felt across the U.S. Bills are rising, but policymaker fixes are elusive:
  • “The electricity world, it’s in chaos. Everyone’s got their idea of the best way to fix things ... maybe we should make it easier for new power plants to connect to the grid, or maybe we should stop connecting new data centers altogether until power supply catches up to demand.” – Keith Romer [33:30]

7. What’s Next?

• PJM recently rejected all a dozen reform proposals, promising a new plan soon.
• The Department of Energy may step in at the federal level.
• Meanwhile, new data centers keep getting built—implying further pressure on rates for “the Kens and Carols of the world.”

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Notable Quotes & Memorable Moments

• Spreadsheet Life: “Everything ends up in a spreadsheet.” – Carol Apacki [01:29]
• Visual Metaphor: “Every single voltage is a different color ... 765kv is green, because that’s my favorite.” – Kamran Ali [17:10]
• Plain Truth: “I cannot imagine someone designing this system on purpose.” – Kathy Kunkel [23:30]
• Inevitable Cost: “Ordinary people are going to end up subsidizing the wealthiest industry in the world.” – Kathy Kunkel [32:51]
• Policy Deadlock: “PJM … reviewed a dozen different proposals for how to fix its problem, and they rejected all of them. … So it’s anyone’s guess how any of this plays out.” – Jeff Guo [33:48]

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Timeline of Key Segments

• [01:15–03:29] Ken & Carol’s data: discovering their escalating electric bill
• [03:45–04:23] Ken’s hypothesis & central Ohio’s data center boom
• [07:04–09:42] Tour of landscape transformation by data centers
• [10:34–15:56] Interview with Mark Ryder (AEP Ohio): distribution, costs and policy adaptation
• [16:56–19:44] Kamran Ali on the scale and cost of expanding transmission
• [21:54–32:32] Capacity markets, PJM, and the broken economics of power generation (with Kathy Kunkel)
• [32:51–34:10] Summary of who pays and what happens next

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Final Takeaway

The boom in AI data centers is putting unprecedented pressure on the U.S. power system. The resulting strain is causing electricity prices—most notably in regions like Ohio—to surge. But it’s not just local infrastructure needs; it’s the strange, intricate market design for generating and guaranteeing future electricity supply that’s passing huge costs onto ordinary people. As tech companies race ahead, the system is struggling, and until major reforms happen, households will keep bearing the brunt.

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Episode produced by Sam Yellow Horse Kessler, edited by Jess Jiang, fact-checked by Sierra Juarez and Vito Emanuel, engineered by Sina Lofredo. Executive producer: Alex Goldmark.

Transcript

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[Carol Apacki]

Thanks.

[Erica Barris]

This is Planet Money from npr.

[Keith Romer]

Earlier this month, I visited Ken and Carol Apacki.

[Mark Ryder]

Hello.

[Ken Apacki]

Good morning.

[Keith Romer]

How are you, Keith? They live in a little town outside Columbus, Ohio.

[Ken Apacki]

Oh. Can't always predict how long it'll take to get somewhere.

[Keith Romer]

They're retired now. Carol worked in curriculum development. Ken was an engineer. And according to Carol, Ken still has an engineer's way of keeping track of things. Everything, everything ends up in a spreadsheet.

[Carol Apacki]

He had the grandkids. What was it when you had them do a chart, all of our grandkids, the daddy. Oh, yeah. Their height, how much they grew from year to year because he's been measuring.

[Ken Apacki]

We've got a big with everybody's measurements.

[Keith Romer]

There for 20 years, all 13 grandkids, their height by year in a spreadsheet on their computer.

[Ken Apacki]

Oh, yeah.

[Keith Romer]

Can I see it?

[Ken Apacki]

I think I can find it.

[Keith Romer]

See if you can find it.

[Ken Apacki]

Oh, no, you don't.

[Keith Romer]

I do.

[Ken Apacki]

Really.

[Keith Romer]

Not only was there a spreadsheet, there was a graph of the growth curve of each kid. That is your grandson's Jalen's growth history. Growth history. And it looks like he's about 62 now.

[Ken Apacki]

Yeah. Yep.

[Keith Romer]

On another spreadsheet on his computer, Ken had tracked the growth of a different number, their electric bill. And it was really this spreadsheet I had come to see.

[Ken Apacki]

Here's my spreadsheet. And so here we start back in July of 2020.

[Keith Romer]

Every month for the last five years, Ken has recorded how much electricity he and Carol used and how much they had to pay their utility company, AEP Ohio. Like a lot of people around the country, Ken and Carol's electricity prices, what they are paying per kilowatt hour. That has been going way up.

[Ken Apacki]

And so my charge is around 11 cents.

[Keith Romer]

That's your 2020 charge, right?

[Ken Apacki]

Yeah. And 2020. And down here in 2025 it's 19.

[Keith Romer]

So it's nearly doubled.

[Sponsor/Advertisement Voice]

Yeah.

[Keith Romer]

In five years.

[Ken Apacki]

Yeah.

[Keith Romer]

Do we know why?

[Ken Apacki]

I don't know why, because AEP Ohio charged me that.

[Keith Romer]

Ken doesn't know, but he does have a theory. His theory has to do with all the physical stuff that is being built to create our new AI future.

[Ken Apacki]

The data centers we're aware of came about 2020 and then it's gone from there to data centers all around.

[Carol Apacki]

130 data centers in central Ohio here. I mean, that is amazing.

[Keith Romer]

And so you, in your mind you are making the connection between these data centers showing up and this price increase in your electricity bill.

[Carol Apacki]

Well, they are telling us your rates are gonna increase. I mean that's what we're hearing in the news and all that. This is, you know, they don't have enough power.

[Keith Romer]

Hello and welcome to Planet Money. I'm Keith Romer.

[Jeff Guo]

And I'm Jeff Guo. With tech companies spending hundreds of billions of dollars on AI data centers have kind of become the thing in the US economy. We are spending more to build data centers than we spent to build the entire interstate highway system.

[Keith Romer]

But along with has come questions about where all the electricity to run those incredibly power hungry data centers is supposed to come from. Today on the show, data centers and electricity. What all the AI investment might mean for all of our electricity bills and what, if anything, we can do about it.

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[Jeff Guo]

[e-mail] so investment in data centers has been this giant economic story. We're talking hundreds of billions of dollars expected to add up to trillions over the next five years. But you know, Keith, sometimes this whole thing has felt super abstract, right? Like it's just a line on a graph called data centers, and it's going up and up and up.

[Keith Romer]

Totally. And this is honestly part of the reason I wanted to go report this story in the first place, right? Like, I wanted to actually go look at some data centers, and Ken and Carol offered to take me on a little tour of their corner of central Ohio. All right, so tell me the plan.

[Ken Apacki]

Okay, we'll start here in Granville and then go over to Alexandria and then an existing new data center.

[Keith Romer]

Jeff, I don't know if you know this about me, but once upon a time, I lived in Ohio for a year and a half.

[Jeff Guo]

Best year of your life.

[Keith Romer]

Well, it is where I met my wife. And at first, the landscape, right where we were, that landscape looked kind of like the rest of the state. This, to me, is what it feels like driving across any part of Ohio. It's like flat land, farm trees, a little snow on the side. But then six or seven miles from Ken and Carol's house, complete change.

[Ken Apacki]

Okay, and you come out of the trees and what do you find? Cranes and construction and a data center.

[Keith Romer]

Then a little ways down from there, another data center.

[Ken Apacki]

This is a brand new building. In the last six months. I think it's Google or Google's back in there somewhere.

[Keith Romer]

And then another.

[Ken Apacki]

This is a data center over here and a data center here.

[Keith Romer]

And another.

[Ken Apacki]

I don't know whether this is meta or the next one's meta or. They're both meta, Jeff.

[Keith Romer]

It was just miles and miles of this.

[Jeff Guo]

Just the smell of raw infrastructure.

[Keith Romer]

Sure. It was all of these enormous, like, the most plain rectangular buildings you've ever seen. They were like gray or tan or black, and they were football fields long. And like. How do you even describe them? We were in the car. We were trying to come up with the right adjective.

[Ken Apacki]

We tried out boring, starkly unobtrusive.

[Keith Romer]

We tried out ugly.

[Carol Apacki]

They have an ominous feel to them. That's the way I would think of it. I don't know what they need to.

[Ken Apacki]

Look like, but interesting. The windows, those just look like vents. They can open up if it got too hot. Yeah.

[Keith Romer]

They're not windows really, are they?

[Ken Apacki]

No, there's no glass.

[Keith Romer]

I suppose the computers don't need to look outside.

[Ken Apacki]

No.

[Keith Romer]

The places that didn't have data centers had data center construction. You know, dump trucks hauling dirt, workers putting up new data centers. It's just like a miles long construction site piled up pipes and storage containers and building supplies.

[Carol Apacki]

Every time we come, we see some new vast wasteland.

[Ken Apacki]

There it is, used to be a goldenrod field.

[Keith Romer]

And Jeff, everywhere you looked, giant power lines, substations, like, it was very clear that there's going to be all of this electricity coming in for these data centers from these lines.

[Jeff Guo]

Right. But there's a lot you can't figure out just by looking at the data centers and their power lines. To really understand why Ken and Carol's electricity prices went up as much as they did, you need to understand the market for electricity, which is just really weird. It has all these different complicated layers to it. So we are going to try to peel back those layers and figure out who is to blame for Ken and Carol's electricity prices going up so much.

[Keith Romer]

Yeah. So the first stop on our journey, maybe the most obvious place to look, is the company who sends Ken and Carroll their power bill each month. I will ask you kind of easy questions to start, which is just, can you introduce yourself?

[Mark Ryder]

Sure. Mark Ryder, president of AP Ohio.

[Jeff Guo]

Mark's company, AEP Ohio, serves about a million and a half customers around the state. But they are only responsible for delivering electricity to their customers. Kind of the last mile of power markets. A lot of their job is taking care of all the power lines and sometimes building new power lines and substations and whatever else to connect new homes and businesses.

[Mark Ryder]

It's a simple product. I think everybody understands the product. Incredibly complex to deliver that product.

[Keith Romer]

Mark says going back about a decade, he started hearing from data center developers who wanted to get connected to power. Then in 2022, 2023, he started getting a lot of requests to connect a lot of data centers who wanted a lot of power.

[Mark Ryder]

If we do a 800 home housing development, that'll be, you know, call it a megawatt. But the data centers are clusters of 50 megawatts to 3,000 megawatts.

[Jeff Guo]

So just one of those bigger data center clusters he's talking about would use the same amount of electricity as the Entire city of Fort Worth, Texas.

[Keith Romer]

Now, it's worth pausing for a second to explain AEP Ohio's business model. It works like this. The state gives AEP Ohio a monopoly over delivering electricity in its service area. But to keep their monopoly power in check, AEP Ohio is not allowed to set their own prices. Instead, the prices are set by the government, the state utility commission. If AEP Ohio ever wants to raise its rates, it first has to get permission from the commission.

[Jeff Guo]

The primary reason they're allowed to raise rates is because they've invested in their infrastructure, upgrading their power lines, or building new lines and substations when they need to.

[Mark Ryder]

The grid supports everybody, and everybody pays fair share. That's the crux of the model, has.

[Keith Romer]

Been for a long time, and for years, this kind of social contract made sense. The infrastructure expanded little by little over time, and everybody paid for it collectively. But as more and more companies were asking to connect more and more data centers and get access to more and more power, Mark realized all this could kind of break the system and really raise prices for residential customers.

[Jeff Guo]

There were a few ways this could happen. For one, a data center company could ask to be connected, get AEP Ohio to build all this infrastructure, and then just never actually build that data center.

[Mark Ryder]

The bad scenario is that they are insolvent or they never show up, or they weren't real.

[Keith Romer]

Or the data center company could show up, connect to power, but just take forever to start using and paying for all the electricity they asked for. Or they could change their mind and close up shop after a year or two. If any of that happened, it would be the rest of AEP Ohio's customers who'd end up getting stuck footing the bill.

[Jeff Guo]

Data centers did have to help pay for the new infrastructure built specifically for them, but only to a point. They were required to pay for at least 60% of the energy they asked for, whether or not they used it. Mark worried, though, that that might not be enough.

[Mark Ryder]

Let's say it's a billion dollars to build that infrastructure, 400 million. The remaining 40% will be paid by all other ratepayers. When you're talking billions of dollars and all this infrastructure, and if you, if you play it out, and our view was this was just the beginning, we had to get the rules right.

[Jeff Guo]

Mark, we should say, was under some real pressure here. Pretty much everybody's electricity bills were going up, and to the extent that people could put a face to the problem, it was Mark's face.

[Keith Romer]

Are people mad at you? Like, personally.

[Mark Ryder]

I'm sure, some are, yeah. I don't want to have another cocktail conversation about what I do.

[Keith Romer]

Like you say that I'm the president of AEP Ohio and somebody.

[Mark Ryder]

Yeah, I sometimes just want to be Mark.

[Keith Romer]

If AEP Ohio raised rates for residential customers to connect all these data centers, it would, to say the least, be pretty politically unpopular. And remember, if Mark wants to raise rates, he has to get permission from the Public Utility Commission, which is appointed by the governor, who has to answer to voters. So Mark had to find a way to thread this needle.

[Jeff Guo]

In 2023, AEP Ohio made a big decision. They were going to stop letting any new data centers sign up for power. They essentially pressed pause on the whole process. And Mark and his team got to work trying to find a lasting solution.

[Keith Romer]

What they came up with was a pretty innovative set of new rules, rules just for data centers. AEP Ohio would require data centers to start paying for the vast majority of the energy they requested within four years. And the data centers had to put up millions of dollars in case they didn't end up sticking around.

[Mark Ryder]

We had to flush out who's real and who's not. And you do that with collateral requirements. That's big money.

[Jeff Guo]

Finally, they would make data centers pay for a larger share of the energy they asked for. Instead of requiring them to pay at least 60% of the power they had requested, AEP Ohio was going to ask for as much as 85%.

[Mark Ryder]

So as long as the data centers show up and use what they say they're going to use, that should offset the costs associated with the infrastructure build out.

[Keith Romer]

The new rules got approved by the state Utility commission and went into place earlier this year. It's one of the first data center specific utility rates in the country.

[Jeff Guo]

Mark acknowledges that residential customers will still pay for some of the infrastructure costs from data centers, but it should be a lot less now.

[Keith Romer]

And using the data from Ken's spreadsheet of all his electric bills and talking to energy experts, we estimate that only about 10 or 20% of the price increases Ken and Carol saw were because of AEP Ohio. AEP Ohio, though they are just the local distributor, their job is only to bring electricity the last mile to people's homes.

[Jeff Guo]

So if the problem isn't distribution, how are data centers making things more expensive? Well, the next place to look is one step further up the chain at what is called transmission. So not how electricity gets moved around on a local scale, but on a much bigger scale. The grid of giant power lines that connects power plants from one state to Customers hundreds of miles away.

[Keith Romer]

Kamran Ali is in charge of a big chunk of that grid of power lines across 11 states.

[Jeff Guo]

1.

[Keith Romer]

When Cameron closes his eyes, he says he can visualize the whole thing in your mind. Is it colors or is it black and white colors?

[Kamran Ali]

Yes, absolutely. Every single voltage is a different color.

[Keith Romer]

What are the colors?

[Kamran Ali]

Well, 765kv is green, because that's my favorite. 345kv is red, and then 138kv is black, and then we have lower voltages purple and yellow.

[Jeff Guo]

Cameron works for aep, which is the parent company of AEP Ohio. His job is to make sure that the multicolored grid that AEP owns stays up and running and to figure out what new red and green and black power lines need to be built to get all the electricity where it needs to go.

[Keith Romer]

Cameron told us to think of the grid as like the highway system, but for power. If you want to send more power to new data centers, you have to build new lanes and new on ramps and new off ramps.

[Kamran Ali]

The only difference, which is a big difference, is that where you may be traveling 70 miles an hour on an interstate, electricity moves at the speed of light.

[Jeff Guo]

It costs billions of dollars to expand that highway system to build out those long distance transmission networks. Those costs get passed on to customers, just like costs get passed on for distribution at the local level.

[Kamran Ali]

Transmission is very similar when it comes to rate recovery or cost recovery.

[Jeff Guo]

When AEP spends money to upgrade its infrastructure, it's generally allowed to recoup that money from the people it serves. The regulator that has to approve any price increases in this case is the federal government.

[Keith Romer]

Which means that not only are Ken and Carroll paying for the new black and red and green power lines that serve data centers in Ohio, they're also paying for power lines for data centers being planned in, you know, West Virginia and Indiana. And Cameron says there is just so much demand for new power, or peak.

[Kamran Ali]

Demand before the advent of data centers and crypto customers, was roughly 40,000 megawatts. So that's our peak demand. It took us 100 years to get to 40,000 megawatt. We have currently signed agreements to bring on another 28,000 megawatts by 2030 in a span of five years.

[Jeff Guo]

It is really hard to tease out precisely how much of the increase in Ken and Carroll's electricity charges comes from building out the transmission grid, let alone isolate what part of that build out was specifically due to data centers. But from what we can tell from talking to experts and comparing their old bills to their new ones. Transmission it actually isn't that big of a culprit either. Transmission charges did go up over the last five years, but that change seems to account for less than 20% of their total increase.

[Keith Romer]

Add that to the 10 or 20% estimate for the distribution part of the increase and you still have over half the price jump unaccounted for. So what's to blame for that biggest part of their increased bill? That's after the break.

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[Keith Romer]

Okay, so far we've talked about the way data centers might be increasing electricity prices for our retired couple, Ken and Carol, in two ways. Distribution, sort of the last mile of bringing power to them, and transmission, bringing electricity along high voltage lines from power plants to their area. Together, those two account for something like 30 or 40% of the increase in.

[Jeff Guo]

Their electricity prices, which leaves more than half of the increase unaccounted for. The culprit here is generation. It's the power plants that make the electricity in the first place. But that story is way, way weirder than just, you know, power plants jacked up their prices.

[Keith Romer]

Okay, time for a classic podcast move, Jeff. To understand this piece of it, we actually have to go back in time a few decades back. Then, in a lot of places, including in Ohio, utility companies were in charge of the entire process of getting electricity to customers. So generation, transmission and distribution, all vertically integrated in one utility.

[Jeff Guo]

And in a lot of the western and southern parts of the US you still do have these vertically integrated omnibus power companies, but for now, we are going to stay with Ohio. And In Ohio, about 25 years ago, they threw out that old system and they broke up these vertically integrated companies.

[Keith Romer]

So some companies would be in charge of distribution, other companies would be in charge of transmission, and still other companies would be in charge of power generation. The idea was deregulation. You'd get more competition, and hopefully that would make electricity prices come down.

[Jeff Guo]

And it worked for a while. But today, with all the new demand for power from data centers, that system is starting to break down. To help explain this bit, we called up Kathy Kunkel.

[Keith Romer]

If we were starting a system from scratch today, would we design the one that we have now?

[Kathy Kunkel]

I cannot imagine someone designing this system on purpose.

[Jeff Guo]

Seriously.

[Kathy Kunkel]

It has just. It has sort of evolved and, like, as problems have come up, it's been kind of taped together to keep working. But I. Yeah, I don't think this is really what anyone would just, like, sit down and dream up.

[Jeff Guo]

Kathy is an energy consultant at the Institute for Energy Economics and Financial Analysis. And the first thing she pointed out to us was just how weird of a product electricity is. You know, power, it's not like shoes or wheat or something where it's easy to store extra inventory in some warehouse somewhere.

[Keith Romer]

Sorry, batteries, you're just not that good yet.

[Jeff Guo]

Right, Right. For the most part, you have to be able to generate electricity in real time for the people who want it right now, which is very tricky.

[Kathy Kunkel]

Power demand, or our use of electricity, is not constant throughout the day or throughout the year in particular, it spikes typically at certain times, like on a.

[Jeff Guo]

Really hot day in the summer, everybody.

[Keith Romer]

Turns on their air conditioners on August 17, and there's not enough power to supply it. What happens?

[Kathy Kunkel]

There will be rolling blackouts. I actually happen to be in Puerto Rico right now, where that's actually a relatively frequent occurrence that there's not sufficient power plant capacity to supply the peak demand. And, yeah, that's exactly what happens. The utility has to curtail the demand.

[Jeff Guo]

Now.

[Keith Romer]

Before deregulation, when it was one utility company's responsibility to handle everything for a particular area. Distribution, transmission and generation, it was that company's responsibility to make sure there were no shortages, you know, no rolling blackouts. They had to forecast how much power they would need in the future and make sure there were enough power plants to meet that future demand.

[Jeff Guo]

The idea behind deregulation was that markets could do the planning.

[Keith Romer]

Markets so efficient.

[Jeff Guo]

But markets left completely unchecked could potentially introduce a new problem.

[Keith Romer]

Yeah. Think about what happens in a market when there is a shortage of something. Prices. They go way, way up. In theory, that should incentivize companies to start making more power and eventually everything would be fine. But A, nobody wants to get an electric bill for $1,000 because they ran their AC on a super hot day. And B, rolling blackouts are also obviously not a great outcome.

[Jeff Guo]

There are a bunch of different ways to solve this problem. Where Ken and Carol live in Ohio, their electricity is overseen on a regional level by an organization called PJM. It manages power for 20% of Americans. And PJM thought that they could fix the problem with this market, but by creating another market.

[Keith Romer]

This new market would make sure that enough new power plants were being built today to supply the electricity that would be needed years from now. They called it the capacity market, which.

[Kathy Kunkel]

Was designed to incentivize new capacity to come online to make sure that PJM will be able to keep meeting that peak demand in the future.

[Keith Romer]

And so the idea is that I'm a power plant operator and even if nobody is buying my energy, I'm still going to get this revenue stream just for being willing to supply power on those peak demand days. Just to say, I'm ready to if you need it.

[Kathy Kunkel]

Yeah, exactly. So it's trying to look out in the future and say, how much power are we going to need if we don't have it right now? Can we provide a price signal so that a generation developer thinks, oh, there's money here, let me build my power plant in pjm.

[Keith Romer]

It's hard to stress enough how weird the capacity market is. So PJM will try to model how much power the region's going to need three years out into the future. And then it will hold an auction where it will determine how much power plants should be paid for, promising to be available in case they are needed on that one super hot day when everyone turns on their academy. Local power distributors basically have to pay power plant operators just for existing, whether or not those power plants ever generate any actual power to sell.

[Jeff Guo]

And as weird as this sounds, for years and years the capacity market worked more or less. Even on the hottest days, there was pretty much always enough power to go around. But part of the reason this all worked was electricity use wasn't changing that.

[Kathy Kunkel]

Much up until now.

[Keith Romer]

Ish.

[Kathy Kunkel]

Like for the past couple of decades, the US electricity sector as a whole has been operating in essentially a flat demand environment. Electricity demand just wasn't growing that much.

[Keith Romer]

So it was relatively easy for power generators to keep up with any demand growth. But Kathy says the moment when a kajillion data centers showed up and started wanting more and more and more power, things really broke down. It turned out the capacity market was not great at dealing with this kind of scenario.

[Kathy Kunkel]

The capacity market is becoming a lot tighter. You know, the demand is there and the supply is maybe not.

[Jeff Guo]

And so in the capacity market, the price to guarantee that there will be enough power plants making power three years from now, that price has gone way, way up.

[Kathy Kunkel]

PJM's prices for generation went up by a factor of 10.

[Keith Romer]

That's a lot.

[Kathy Kunkel]

Yeah, that's a lot.

[Keith Romer]

The amount local utilities across PJM had to shell out went up by $12 billion in one year. Again, not to actually buy any electricity, just to guarantee that there would even be enough electricity to buy in the Future. And that 12 billion extra dollars it got spread out across the electric bills of all the customers in the PGM region, including Ken and Carroll in Ohio.

[Jeff Guo]

But that is not even the worst part. Okay. Cathy says the high prices in the capacity market may not even be getting companies to build that many new power plants for a whole bunch of reasons. Reason number one is a timing mismatch. The capacity market only guarantees a price for capacity for one year and that price could go right back down for the next year.

[Kathy Kunkel]

So if you're planning like a 20 to 30 year asset, I'm not convinced that like knowing a couple years price signals is really that useful.

[Jeff Guo]

Reason number two has to do with the different ways electricity can be generated. Probably the fastest way to bring new power online would be to build wind or solar. But for the most part, renewable energy counts for way, way less in the capacity market.

[Keith Romer]

Yeah. Remember what an energy company is selling in the capacity market is its ability to supply power whenever demand is at its peak. And solar panels, they cannot generate power at night. Wind turbines can't make much power on calm days.

[Jeff Guo]

So what about natural gas plants? Obviously they are not great for climate change, but historically they were pretty easy to build quickly. But that brings us to the third reason why more power plants are not being built right now. There is actually a shortage of the gas turbines that gas power plants need to operate. Manufacturers can't make them fast enough to keep up with demand.

[Kathy Kunkel]

So what used to be like a two, two and a half year wait time to get your turbine has now turned into a five or six year wait time.

[Jeff Guo]

The last problem comes from PJM system for connecting new power plants to the grid. Even if a company decides to build a new plant and they can get their hands on gas turbines. They still have to wait in a years long line to get hooked up to the grid, so they might not be able to start sending out electricity anyway.

[Keith Romer]

In an email, a PJM spokesperson said this narrative is old and it's no longer true that PJM had done a good job clearing the backlog of power plants waiting to connect. But the experts I spoke to said it was still a problem.

[Jeff Guo]

And that problem, along with all the other problems we talked about in the capacity market, they all add up to local utilities spending an extra $12 billion. $12 billion that was supposed to incentivize new power plants to start supplying electricity. But instead, almost all that money is going to power plants that are already up and running. And most of them would have made electricity even without all that extra money.

[Kathy Kunkel]

Most of the money from the capacity market just ends up going to existing power plants.

[Jeff Guo]

And so this is kind of our answer. The reason Cannon Carroll's electricity prices went up was mostly not because data centers increased costs for the last mile distribution of electricity, and not because of what data centers did to the costs for new long distance transmission lines. No, by far the biggest contributor to their electricity prices going up was generation. And most of that price increase came from the way the capacity market isn't really working the way it is supposed to.

[Keith Romer]

Kathy says it's important to keep in mind why all of this is happening. A bunch of tech companies are in a big hurry to build data centers, which is creating a huge surge in demand for power for some of those projects. Companies are building their own on site power plants, but the rest of that demand will have to be absorbed by the rest of the electricity system.

[Kathy Kunkel]

I think it's almost inevitable, the way that these structures are set up, that ordinary people are going to end up subsidizing the wealthiest industry in the world.

[Jeff Guo]

Folks like Ken and Carol who live in PJM's region, they probably have it the worst. Their electricity prices have gone up the most in large part because of all these new data centers. But different versions of this story are playing out all over the country. The sheer scale of the demand for power from these data centers is putting a lot of pressure on the electricity system. And lots of people are seeing their bills increase as a result.

[Keith Romer]

Right now, the electricity world, it's in chaos. Everyone's got their own idea of the best way to fix things. You know, maybe we should make it easier for new power plants to connect to the grid, or maybe we should stop connecting new data centers altogether until power supply catches up to demand PJM.

[Jeff Guo]

Just had a big meeting last month where its board reviewed a dozen different proposals for how to fix its problem, and they rejected all of them. They say a new plan is coming next month. On the federal level, the Department of Energy has been making noises about taking over control of data center connections for the entire country, so it's anyone's guess how any of this plays out.

[Keith Romer]

In the meantime, more data centers are being built that will need more power, which the kens and carols of the world will have to keep paying for. If you enjoy Planet Money, please help us by leaving a rating and a review on your podcast app. Thanks to username Informative Millennial. Honestly, not a bad nickname for you Jeff, who wrote this on Apple Podcasts. This podcast always teaches me something informative about economics, society, history and culture in every episode. So nice.

[Sponsor/Advertisement Voice]

Aww.

[Keith Romer]

Reviews like that could really help new listeners pick us out from the giant pool of podcasts they could be listening to. So please consider leaving a review yourself.

[Jeff Guo]

Today's show was produced by Sam Yellow Horse Kessler. It was edited by Jess Jiang and fact checked by Sierra Juarez and Vito Emanuel. It was engineered by Sina Lofredo. Alex Goldmark is Planet Money's executive producer.

[Keith Romer]

Special thanks today to Mike Jacobs, Mike Hogan, Laura Ehrenshield and Abe Silverman. I'm Keith Romer.

[Jeff Guo]

I'm Jeff Woe. This is npr. Thanks for listening. Foreign.

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[Erica Barris]

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