American electric utilities stand to reap enormous profits by satisfying the energy needs of the world’s largest corporations. Amazon, Google, Meta, and other Big Tech companies are looking to secure electricity for their data centers – massive warehouses full of power-hungry computers and other equipment. To attract Big Tech to their regions, utilities are offering special electricity rates and using their monopolies to shift the costs of these discounts to the public.

In our new paper, Extracting Profits from the Public, we explain how utilities do this and how policymakers could protect consumers.

Utility regulation socializes the costs of new power plants and power lines based on the premise that the public benefits from new infrastructure. To support the financial viability of electric utilities, state regulators approve energy prices that reimburse utilities for their operational expenses and allow them to profit from their capital investments. When it reviews a utility’s proposed rates, the state public utility commission (PUC) determines how to divide these costs among various types of ratepayers, such as residential and industrial consumers.

The PUC’s goal is to align consumer prices with what it costs the utility to provide service. Setting rates is a public process that allows consumers to argue for rates in their favor. Unavoidably, the PUC’s decision favors some groups over others.  

Despite its inequities, this rate-setting process has endured for more than a century. It has financed the construction and operation of the electricity systems that power our nation’s economic growth. For many utilities, expectations about growth are now dominated by new data centers. If PUCs allow utilities to follow the conventional approach of lumping consumers together and making them all pay to expand the grid or build new power plants, utilities will impose data centers’ energy costs on the public.

Read the full article by Eliza Martin and Ari Peskoe at the Harvard Climate Blog.