Tech giants are racing to build data centers and dominate AI, but America's aging electrical grid may struggle to keep pace with surging energy demands. US households are largely paying for the additional costs, prompting federal and state officials to seek emergency solutions.
The Political Response
The Trump administration and northeastern governors are pressuring PJM, America's largest electric grid operator, to hold an emergency power auction where tech giants would cover surging costs from their data centers. However, PJM cannot be mandated to comply and reported receiving no advance notice of the plan.
Where Data Centers Are Built
Virginia hosts the world's largest data center cluster with 561 facilities across 23 markets, according to Data Center Map. Developments are expanding to remote locations where energy is more abundant and grids less strained, with expected growth in Denver, Los Angeles, and Pennsylvania.
Some states are incentivizing investments. Ohio offers partial or full sales tax exemptions for companies making significant capital commitments, creating competitive advantages for data center development.
Leading Companies and Spending
America's tech giants are investing massively in AI infrastructure. Meta spent $17 billion in capital expenditures for the quarter ending June 2025, primarily on data centers and infrastructure. Microsoft spent $24.2 billion for the quarter ending last June.
Amazon announced $15 billion for new data center campuses in Northern Indiana, adding to an $11 billion investment announced in 2024. Bank of America estimated annual spending on data center construction hit $40 billion in June, reflecting the scale of this infrastructure buildout.
Impact on Electricity Bills
Residential electricity rates rose 5.2% in October from the same period in 2024, according to the Energy Information Administration's monthly report. A Bloomberg News analysis found electricity costs in areas near data centers increased by as much as 267% compared to five years ago.
The data center boom is boosting demand and straining resources, noted Ryan Hledik, principal at research firm Brattle Group. However, exceptions exist: prices could drop if a data center is built in an area with spare capacity or operates outside peak usage hours.
America's aging electrical infrastructure compounds cost increases. Most rate increases over the last decade can be attributed to the distribution system, which requires more expensive investments following pandemic supply shocks.
Projected Energy Consumption
Data centers are projected to consume 6.7% to 12% of US electricity in 2028, up from 4.4% in 2023, according to a December 2024 Department of Energy report. This represents nearly tripling consumption in just five years.
Some utility companies are introducing new rates for large customers to prevent data center demand from affecting residents. States are also intervening. Oregon passed legislation requiring data centers to "pay for the actual strain they place on Oregon's electrical grid."
Microsoft recently announced it would request higher electricity bills in areas where it builds data centers, potentially setting a precedent for industry responsibility.
Water Supply Concerns
Data centers need significant water volumes to cool complex systems. These facilities are expected to need 170% more water by 2030, according to McKinsey citing WestWater Research. Thermal plants supporting data centers also require water for cooling, compounding the resource strain.
This raises fundamental questions about coexistence between data centers and American communities. "How do we create the conditions so that everyone is a winner in this situation, and not a case where you have some winners and then the local community," Hledik said.
The Path Forward
The challenge extends beyond immediate grid capacity. It encompasses:
Infrastructure investment: Aging distribution systems require modernization to handle new demand patterns efficiently.
Cost allocation: Establishing fair mechanisms ensuring tech companies pay proportional shares rather than shifting costs to residential ratepayers.
Resource management: Addressing both electricity and water constraints as data center clusters expand into new regions.
Regulatory frameworks: Developing policies that balance economic development with community protection and resource sustainability.
The data center boom presents a fundamental test of whether America's infrastructure can support technological advancement without disproportionately burdening residential consumers. Federal, state, and corporate responses over the next several years will determine whether communities and tech giants can coexist sustainably, or whether the AI revolution comes at the expense of household budgets and local resources.