Electric rates have surged far higher than the Consumer Price Index. Across the country, rates have escalated in 2025 from 5% to as high as 14%. The reasons boil down to policies. Sure, natural gas prices have risen, as have the costs of replacement infrastructure, but the real driver in utility raises have been poor governance.
Across the country, rates for electricity are set by agencies and commissions that regulate “public utilities.” They go by a myriad of titles, depending on which state you are in. Arizona’s agency is the Arizona Corporation Commission, Colorado’s is called the Colorado Public Utilities Commission, then there’s the Virginia State Corporation Commission, and the Illinois Commerce Commission. In roughly a third of the states, seats on these boards are elected while the balance are appointments by either the Governor or Legislature of the state. Most have one thing in common; they are subject to lobbying.
Three factors primarily drive rates: 1) Increase in electrical demand; 2) aging infrastructure (grid); and 3) costs of electrical generation. Seems pretty straightforward, doesn’t it? That’s what some would like to have you believe.
Let’s take a closer look at these three drivers.
· Increase in Electrical Demand: With the nation’s population nearly flatlining, what is driving the need for more electricity? Sure, migration to certain areas increases population and demand, but that’s not it. Demand is being driven by smart appliances and the digital world we live in. Chief among these is AI and datacenters. One mega datacenter can use the power that a city of 750,000 uses. And, don’t get me talking about freshwater water usage for cooling and electrical generation. Take for example Arizona, a State in water crisis is the ranked 5th in the country for the number of datacenters. The Arizona Corporation Commission is weighing a rate increase of 14% this year for Arizona Public Service (APS), its third rate increase in four years. Rather assign the new infrastructure costs to the entities and new users that demand new infrastructure (like datacenters), costs are typically spread out amongst all users. It’s about policies that assign costs to those triggering new costs, common sense approaches lobbyists resist.
· Aging Infrastructure: The grid is old and in need of hardening and upgrades. It has been neglected for decades. The costs of new infrastructure (equipment, poles, wire) have all escalated because of inflation and tariffs. But again, the demand for replacements, upgrades and expansions are being driven at a far faster pace by the new demands.
· Costs of Electrical Generation: With the exception of renewables (hydro, wind, and solar), generation of electricity involves heating water to steam that drives turbines. Coal, natural gas, nuclear, they all use the same steam generation process. In 2025, the administration has embarked on a war against renewables (the Department of Energy is clawing back $1.8 billion in loan money from the APS designed to fund renewable generation, transmission and battery storage).
Arizona, like a great many purple and red states are mandating natural gas generating stations, despite coal and natural as being more costly to operate (not to mention water consumption again). Arizona is not alone.
Policies are choices. The common legislative authorization preamble for these state rate setting entities is to regulate industries for the public good. That goal seems to be getting lost far too often.