U.S. electricity consumption has shifted from limited to rising growth in recent years, due largely to the proliferation of data centers built to meet a steep growth curve for artificial intelligence businesses, cloud computing and cryptocurrency. That presents significant challenges for public power utilities, KBRA said in a new report.
"Depending on the size of the data center load relative to the available power supply, transmission access and capacity, and the utility's existing customer base, the cost to serve data centers can be significant," the report said, noting that data centers also have credit implications for host municipal governments.
The report cites U.S. Energy Information Administration data that show electricity consumption hit a record high of 4,110 terawatt hours in 2024. "This accelerated U.S. load growth is primarily fueled by data center demand," KBRA said.
The potential downsides of the surging demand include added capital expenditures for infrastructure build-outs, which can impact utilities' debt burden and leverage as well as retail electricity rates; the water needed for data center cooling; and environmental concerns around data center siting decisions, the rating agency said.
Over the past five to seven years, the data center contracts utilities are signing have improved, with "more specifics as to what they need in those contracts to limit exposure to their existing customer base," said Lina Santoro, a director in public finance at KBRA.
Santoro said utilities have been entering into longer-term contracts, for example, and including capacity fees or upfront fees to limit the costs that burden existing customers. They are also starting to demand exit fees, so that if data center developers leave, the fees would partially offset the remaining costs of the generation or transmission buildouts.
"It's just incumbent on the utilities to be careful what's in the contract that they arrange, so that they can cover their cost as best as possible and offload as much of that onto the data center," she said.
Still, there's always the risk of costs being shifted onto retail ratepayers with data center buildouts.
"That is a concern," Santoro acknowledged. Across the country, but particularly in areas where large data center loads have been headed, such as Northern Virginia, Texas or the Midwest, "they are seeing, on average, higher electric rates than they had been in the prior five years."
Santoro said most of the utilities KBRA rates are in unlikely sites for data centers — the New York City area and Los Angeles, for example, where water, power and land are too expensive to draw the resource-intensive operations.
The KBRA report comes on the heels of a
"Both (northern Illinois) and (the rest of the state) are projected to face sustained system‑wide capacity shortfalls in the presence of rapid, data center-driven load growth," the study found. The "resource adequacy challenges… are likely to affect the costs and reliability of electricity supply for Illinois businesses and consumers."
The study, a joint effort of the Illinois Power Agency, the Illinois Commerce Commission and the Illinois Environmental Protection Agency, found data centers are the primary driver of load growth in the latest forecasts from utilities and the two regional transmission organizations operating in Illinois: the PJM Interconnection, which covers northern Illinois, and the Midcontinent Independent System Operator, which covers the rest of Illinois.
Current load growth projections have reached "levels well above those observed in either market over the past 20 years," the study found, noting that given the state's aging supply of coal and gas generators, both systems will see reliability challenges in the future.
PJM is on track to hit a capacity shortfall in 2029, while MISO will see a shortfall starting in 2031.
"The latest auctions in PJM and MISO each set record high capacity prices," the study adds. "While this price signal is designed to support resources needed for system reliability, it also increases costs to consumers."
PJM — which also operates in Ohio, the Midwest's other top data center destination — this month for the first time ever failed to buy as much electricity as it projects it will need, which augurs higher electricity costs for the areas it serves, the
"The Resource Adequacy Study results are consistent with trends we anticipated," Hannah Flath, climate communications manager for the Illinois Environmental Council, said by email. She pointed to the passage of the Clean and Reliable Grid Affordability Act this fall, which, she said, adds 3 gigawatts of battery storage to the system's capacity and requires an integrated resource plan that will do a deeper dive into the issues presented by data centers, including the challenges they pose to clean energy goals.
Flath said the IEC and the Illinois Clean Jobs Coalition are also calling on the state legislature to pass "commonsense guardrails" around data centers in the spring 2026 session.
"Data centers threaten our climate goals by eating up massive amounts of energy and driving up costs for everyday consumers — one new modern data center could require enough electricity to power 750,000 homes," she said.
The groups' specific policy proposals are currently in flux "given how quickly this industry and policy thinking is evolving," she said.
But their core principles include that data centers must pay 100% of their costs through a large load tariff; that data centers secure their own energy and capacity resources; that data centers transparently report water usage; and that frontline communities be protected from pollution spikes through rigorous impact analysis.
"There is going to be pressure on rates, and that's the point of the (report)," KBRA's Santoro said. "That is something that I think the municipal utilities have always been very consciously aware of and are focused on going forward."
