By: Vincent Potter, Policy Project Manager
There are many factors that contribute to the costs that customers pay for electricity. Several factors put upward pressure on prices, including data center expansion, infrastructure upgrade and replacement costs, and fuel cost volatility. Together, these factors can increase the need for more generation and infrastructure, which must be paid for by ratepayers. Regulators review and set utility rates based on rate proceedings. There are several customer options to reduce energy bills, including behavioral changes to reduce energy use; federal, state, and local energy efficiency programs; or installing onsite generation to reduce utility purchases. An alternative is also to consider how regulators treat utility ratemaking and being thoughtful about investments or performance metrics regulators want utilities to value, and ratepayers to pay for.
As of October 2025, at least 50 electric utilities in 29 states and Puerto have rate cases pending before their respective regulators. Rate cases are an opportunity for regulated utilities to increase, or occasionally decrease, customer charges and add new customer programs. According to U.S. Energy Information Administration (EIA) data, which is gathered from utilities and plant operators, electricity costs are generally increasing throughout the United States. Focusing on the residential sector, the average unit price of electricity (i.e. per kilowatt-hour (kWh)) across the country was 16.61 cents per kWh in July 2024 and increased to 17.47 cents per kWh in July 2025.
The EIA collects and publishes electric data on a monthly basis. We compared the costs of electricity at the state level on average in July 2025 to July 2020 in the map below. For the U.S. overall, the average cost of electricity has increased 3.88 cents per kWh over that time period, with most states seeing increases of 3 to 5 cents. The highest change in costs occurred in California, where customers pay an average of over 12.5 cents more for each kWh. Interestingly, North Dakota customers pay almost three tenths of a cent less in 2025 than 2020.
2020-2025 Average Change in Electric Rates: All Customers (cents/kWh)
Source: U.S. Energy Information Administration Electric Power Monthly
The current expansion in data center development to support AI computation and cloud computing also drives additional demand to electric generation and infrastructure. The National Renewable Energy Laboratory (NREL) produces maps to help visualize current and proposed data center and related infrastructure development, see the map below. My colleagues at the NC Clean Energy Technology Center partnered with the Smart Electric Power Alliance to compile and release the Database of Emerging Large-load Tariffs (DELTa) to track developments in utility programs for data centers and other large load customers.
Data center growth, along with load growth generally, requires electric infrastructure to support their energy intensive operations. Lacking contracts or other mechanisms, the burden of paying for infrastructure upgrades could fall to customers at large. Many utilities are developing sophisticated tariff structures (see the DELTa tool) for large load operations which include contracts to ensure that the utility can be repaid for its investments by the end user rather than the ratepayers. These arrangements are key to keeping electricity affordable while meeting customer needs in any classification.
The electric grid, overall, is aging. A recent article from the University of Wisconsin - Madison notes that many critical grid components are 25 to 40 years old; nearing or having passed their intended operational life. Power transformers and substations are aging and in need of expensive replacements. Thanks to expanding demand, new development, and distributed generation, the electric transmission and distribution system must accommodate increasing loads in two directions (customer to electric grid, and electric grid to customer sites).
The threat of natural disasters on reliability also contributes to the need for replacement or upgraded infrastructure. According to the Pacific Northwest National Lab, wildfires increasingly threaten power grids throughout the country, necessitating additional utility planning and investment to maintain reliability. In coastal communities, utilities have historically prepared for tropical storms and flooding but storms like Hurricane Helene of 2024 threaten communities much further inland. Utilities cannot plan for every eventuality, so recovery from storms can be expensive and slow processes.
A compounding factor for the strain on electric infrastructure is project delays and increasing costs. Manufacturers of electrical infrastructure are experiencing high, sustained demand for components, which delays projects and drives up costs as more customers try to access the limited stocks currently available. Over the summer, Reuters reported that most manufacturers needed a five-year lead time for new gas combustion turbines. Additionally, this scarcity has caused around a doubling in the cost to develop gas-fired electric generation plants. Other critical equipment such as transformers, substation equipment, and electronic controls have seen lead times increase from months to a year or more.
The largest single source of electric generation is gas, providing over 40% of electricity in the U.S. in 2024. Over the last five years, wholesale spot prices for a thousand cubic feet (Mcf) of gas ranged from around $2.10 to over $6.60. The EIA projects that 2025 annual average wholesale prices will be around $3.50 per Mcf. The wholesale price does not include transportation of the gas to a combustion site. The U.S. average for delivered gas to end-use sites at the industrial scale ranged from $3.30 to around $7.70 over the same period.
Source: U.S. Energy Information Administration data
Data centers are expanding, the grid is aging, fuel costs can be quite variable, and new parts take longer to get and can be more expensive. These utility investments can create durable forces on energy prices. Electric distribution, generation, and transmission investments will be recovered by utilities over their useful lives - typically measured in decades - and set prices for consumers not just now but well into the future.