Do data centers actually increase electricity prices? No...and yes

Andy, welcome back.

I'm so excited to be back once again, talking yet again about data centers and energy and the interplay of those two things.

As one does.

So, okay, so you wrote this piece, I don't know, a couple weeks ago that I thought made one, basically one central point that I haven't really seen anybody else make and that I think is... really important because there's all of this dialogue right now about the impact of data centers on electricity prices and it's wrapped up in the backlash, et cetera, et cetera.

But the key point that I think you made that I think we should tease out in great detail is the separation of, I would say, the local from the global and And the distinguishing between those two tells you kind of two very different stories in answer to that question of what is the impact of data centers on electricity prices.

So let's talk about local first.

What is the evidence today, like what can we say with any degree of definitiveness about the local impact of data centers on electricity prices? In other words, the impact that a data center within one's utility territory has on that Repayers Bill.

I should say to begin with, the reason that I wrote this piece and the reason I've been thinking about this question is, of course, because so many people in my life, not just professionally, but also just friends and family members, because they know I work in energy, of course, and because...

Everyone in the public now has some association between data centers and energy, which is part of the issue here.

I have lots of people, like my mom and some random friends, being like, are data centers making my electricity bill go up? And I realized that there is not an easy answer to that.

There's not one simple answer.

The answer is nuanced, and it really depends on your perspective.

As we'll come around to, I think globally speaking, the answer is yes.

But let's start with local, because in that context, I think the answer is generally no.

Because if you think about it naively, if you think about adding a new large electricity load to any utility system, any utility territory, it's going to have two impacts.

It's going to cost something to bring that new load online, to interconnect it, to serve it with new generation, to do whatever you need to do to get the energy delivered to that large new load in your system.

And then it's also going to have another impact, which is going to consume a lot of energy over time.

And if you think about like the basic framework for how utilities charge for their services, which is a highly regulated rate structure, regulated at the federal level, regulated at the state level.

If you are served by a cooperative or municipal utility, it's even at the city or the sort of community level, right? But the basic structure is always the same.

The numerator is how much does it cost in aggregate to deliver energy to all the customers? across that utility service area.

And the denominator is how many kilowatt hours do you sell? So it's dollars per kilowatt hour.

And there's all kinds of nuance and detail in how that basic formula is translated into everyone's rates, which are different across different customer classes, residential, commercial, industrial.

But basically, how much does it cost in aggregate? How many kilowatt hours are we selling in aggregate? And again, naively, if you think about adding a data center to any utility service territory, it's probably going to add more to the denominator of that equation than to the numerator.

Because chances are, it's going to...

Well, let me step back for a second.