Power Under Pressure: Understanding the Truth Behind Rising Electricity Costs

Electricity costs are climbing across the U.S., with the EIA expecting the nominal U.S. average electricity price to increase by 13% from 2022 to 2025. For customers, rising power bills can feel sudden and unsettling. Headlines often focus on a single culprit, but energy cost challenges are more complex and nuanced than most realize. 

In reality, U.S. electricity costs reflect multiple factors: aging infrastructure, extreme weather, industrial growth, and new digital demand driven by AI — each adding strain to a grid built for a different era and increasing competition for a limited amount of assets, equipment, fuel, and water. Addressing these challenges is a shared problem for our sector’s various stakeholders, including utilities, OEMs, and policymakers.  

“What’s different now is the convergence of technology, weather, and demand,” says Andrea Willwerth, Manager, Market Intelligence & Strategy, Mitsubishi Power Americas. “The system is being asked to do more than ever before.” 

Utilities, IPPs, ISOs, and state leaders are balancing the pressure to deliver reliable, affordable energy while meeting the low-emissions goals of increasingly complex customers. These newer players, including hyperscalers, developers, and data center co-locators, are used to moving fast and scaling even faster, but now must navigate an energy ecosystem shaped by regulation, timelines, and competing priorities.  

As the power ecosystem becomes more interconnected, clear communication with the public is even more critical. Today’s consumers expect transparency from the brands they trust, and power providers are no exception. That means explaining why prices are changing, what’s being done to manage them, and how strategic investments in a rapidly evolving power market now prevent higher costs later. That kind of transparency builds trust, strengthens credibility, and encourages smarter energy use, which ultimately supports affordability.  

For many, electricity has been taken for granted. Power runs until it doesn’t. And because the grid is largely invisible, the need for modernization isn’t always obvious. By clearly communicating grid modernization as an investment into long-term efficiency and resilience, the energy sector can help consumers understand the forces behind rising costs and why upgrades matter. That’s the story our sector has a responsibility to tell.

What Are the Hidden Factors Driving Electricity Cost Trends?

Most consumers don’t realize how old the U.S. power system is or the impact that aging infrastructure has. An S&P Global analysis shows the capacity-weighted average age of the generation fleet is approximately 28 years, and many coal-fired power plants are now 40–60 years old. Upgrades and replacements require major, long-term capital investments, costs that inevitably ripple into rates.  

We expect regular updates for our cars, smart homes, hospitals, and classrooms because technology evolves and demands change. The grid is no different. While utilities are investing in their fleets, the broader grid lags behind the pace of innovation seen in other sectors. Transmission and distribution upgrades are underway, but according to a 2025 DOE report on U.S. grid reliability, “The magnitude and speed of projected load growth cannot be met with existing approaches to load addition and grid management.” When the grid is inefficient for today’s needs, consumers feel the cost, as essential upgrades are needed to keep the lights on.  

Extreme weather is also driving up costs. Across major U.S. cities, the frequency of heat waves has tripled since the 1960s, according to the EPA. The EIA reports 42% of U.S. households now heat primarily with electricity, up from 35% in 2010. Rising temperatures are forcing utilities to add new capacity, reinforce assets, and increase reserve margins (extra generating capacity kept on standby for reliability), all of which raise near-term costs. 

Electrification adds another layer of complexity. As homes, vehicles, and manufacturing transition to electric power, the U.S. is experiencing its fastest demand growth in decades. This growth is contributing to higher base and peak loads. Bank of America Institute projects U.S. electricity demand to grow at a 2.5% compound annual growth rate through 2035. Higher loads mean utilities need to increase spending on new lines and substations, costs that get passed on to consumers. 

Industrial growth and U.S. reshoring are also adding pressure to the grid, and the EIA projects that the industrial sector alone will grow at 2.1% annually between 2020 and 2026. The American Clean Power Association says that new industrial load growth is disproportionately higher in markets like PJM (Mid-Atlantic and Midwest) and ERCOT (Texas), signaling where regional manufacturing is expanding rapidly. Reshored factories and new manufacturing plants are creating concentrated, location-specific demand growth, which challenges traditional grid planning and may require local infrastructure upgrades.  

Of all the forces reshaping power demand, the digital boom may be the most visible to consumers. The IEA Energy and AI special report projects that data centers will account for almost half of U.S. electricity demand growth through 2030. These centers power everything from ChatGPT and Google Gemini to cloud computing and other digital services, and McKinsey estimates their electricity use will rise by about 25% annually through the decade. “Data centers are a growing part of the picture, but not the whole picture,” says Willwerth. “They’re part of a much larger convergence of forces driving load growth.” 

The takeaway: No single factor is driving electricity costs. It’s imperative that we help the public understand that while these factors combined may raise bills, they also improve power generation efficiency and fund the transition to a stronger, more reliable grid that can ultimately stabilize or reduce costs in the long run. 

Utilities Are Managing the Pressure with Grid Modernization, Capacity Addition, and Rate Design

Utilities’ energy strategies are adapting to maintain reliability and affordability amid accelerated demand growth. That effort requires investment and open communication with customers and regulators about why those investments matter. 

Across the U.S., utilities are investing heavily in grid modernization. Digital grid monitoring, substation automation, and advanced transmission systems are reducing energy losses and outage risk while helping operators respond faster to changing loads. Together, these technologies enhance grid performance and responsiveness, helping keep energy costs in check.  

At the same time, utilities are adding capacity and replacing aging units with flexible, efficient generation. Many are deploying hybrid systems that blend natural gas, renewables, and energy storage to manage peaks cost-effectively while lowering emissions. 

So all of these factors – electrification, manufacturing, modernization – are influencing prices. But perhaps the most significant factor in determining what the end-user sees on their power bill each month is actually rate design, which is being influenced by data centers (though not in the way you might think). Let’s start at the beginning. A regulator’s central concern is that data center electricity cost is getting passed on to residential users. Historically, the contracts have been drafted out and executed where this would be the case. However, rate contracts are changing greatly as a response to hyperscalers and others coming online and demanding more power. These contracts, fittingly, are called large load contracts, and they are structured in distinctly different ways than traditional rate designs.

Generally speaking, large load contracts have three central qualities:
1. Structured in 15-20 year contracts
2. Utilize a "take or pay" clause
3. Leverage a "cancellation fee" 

For example, in Ohio and Michigan, utilities have worked with state regulators to introduce new requirements like take-or-pay provisions, requiring large-load customers such as hyperscalers to pay for roughly 80 to 85% of contracted capacity, regardless of usage. Some state mechanisms also include exit fees and collateral requirements to prevent stranded assets. The reforms aim to spread costs equitably across industrial and residential customers, and these structures are being increasingly adopted as more projects become real.

These contract structures are all part of the power sector evolving to meet the needs of customers and off-takers. “Utilities and hyperscalers are adapting,” says Xiufang Gao, Senior Director, Market Intelligence & Strategy, Mitsubishi Power. “States and regulators are interested in imposing cost-recovery mechanisms, so residents are not overburdened.”

The industry’s challenge now is to make these efforts visible and show how they benefit everyday consumers. 

Original Equipment Manufacturers Innovation in Power Generation

Original Equipment Manufacturers (OEMs) have a limited, but vital, role in cost containment. Although equipment typically represents only a limited percentage of the capital costs of a power plant, according to a visualization from Brattle, OEM energy solutions deliver efficiency, flexibility, and integration that support cost-effective power generation for decades. 

Mitsubishi Power’s high-efficiency gas turbines and hydrogen-ready turbines improve fuel performance, lowering cost and emissions. These turbines bring more electrons to the grid today, while advancing toward the technologies of tomorrow. Through frame agreements and standardized designs, the company helps utilities shorten project timelines and manage costs. Digital tools like predictive maintenance, remote diagnostics, and advanced control systems help operators maintain top performance and extend asset life.  

“We cannot control the macroeconomics, but we can help our customers control what’s in their hands,” says Gao. 

Collaboration Is the Real Solution

The future of energy pricing is a shared design problem and an educational opportunity. Partnerships between utilities, data centers, OEMs, EPCs, and regulators are reshaping the cost and capacity conversation. Despite their differences, they share risk and a common goal: safe, affordable, reliable energy with a path toward lowering emissions.  

Initiatives like DCFlex explore how data center backup power is being integrated into the grid’s reserve margin, reducing the need for new peaking units. Tech companies like Google are experimenting with workload shifting to reduce computational demand during grid peaks.  

“Regulators and hyperscalers are from completely different worlds,” says Willwerth. “But now, you probably can’t go to a power conference without hearing about data centers, and you can't go to a data center conference without hearing about power. They know they need each other, and they're really trying to understand each other and find common ground.” 

These collaborations represent a new kind of progress where innovation is as much about partnership as it is about technology. 

What Comes Next

Electricity costs will continue to evolve as the grid modernizes and power demand grows, but this evolution creates long-term benefits. Efficiency improvements and hybrid systems can help offset rising fuel and construction costs, while new rate structures and contract terms can balance fairness and flexibility across different types of customers. Early pilots are already producing blueprints for scalable solutions, showing that reliability and affordability can advance together. 

By helping the public understand what’s being built, upgraded, and secured, we’re showing consumers the real value behind their electricity bills before misconceptions take hold. That’s how trust is earned, and how credibility endures, in today’s changing energy landscape.