How data centers can help lower electricity costs

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As electricity bills rise across Maryland, customers are asking a fair question: what’s driving these costs and who is paying for it?

A mix of factors is getting public scrutiny, from fluctuating natural gas prices to potential data center development.

While data centers draw attention for their energy needs, there is a remarkable trend occurring across the United States that Marylanders may not know: In many regions, utilities have been able to lower or stabilize customer costs as new large energy users, like data centers, help spread the fixed costs of maintaining and modernizing the grid.

Consider the recent examples. America’s largest utility, Pacific Gas & Electric, cut electric rates by 11% over the past two years, citing data center growth in its service area as a key driver.

Entergy just announced $5 billion in customer savings across three states that it says were made possible by data center power agreements.

Indiana & Michigan Power is lowering base residential electric rates, citing new revenue and local data centers as a catalyst.

Closer to Maryland, Northern Virginia’s residential electric customers pay 10 percent below the national average on transmission costs as of 2024 despite living in the world’s largest data center hub.

Why is this happening?

The answer is simple: Data centers are very big energy customers. As data centers are built nationally, they collectively pay billions of dollars to modernize the poles, wires and substations that make up the electric grid we all use.

They fund these improvements through upfront investments, long-term agreements and specialized rate structures. That means the costs of connecting and serving these facilities are not borne by residential customers.

This is not mere theory. Research from Energy + Environmental Economics quantifies the surplus revenue data centers generate that can be returned to ratepayers. A single 100 MW data center can generate over $3 million in annual value to help reduce rates for other customers.

This could be Maryland’s future, too, but three things have to happen.

First, the state should view data centers primarily as an economic asset for public good. In addition to paying for electric grid modernization, data centers are generally catalysts for long-term economic growth.

The Maryland Tech Council found that a single data center supports nearly 5,000 direct and indirect local jobs during construction, and another 500 jobs during operation. In addition, the Qualified Data Centers in Prince George’s County report noted that data centers can play a role in strengthening the fabric of community life. By supporting schools, libraries, parks and healthcare facilities, leading to expanded educational opportunities, enhanced recreation, and contributing to healthier, more connected neighborhoods.

Second, Maryland relies heavily on imported power, leaving customers exposed to price volatility outside the state’s control. Building more energy here at home is one of the most direct ways to improve reliability and put downward pressure on long-term costs. Further, improving the permitting and regulatory proceedings will mean more local energy, better reliability and less cost pressure on residents.

Lastly, data centers can and should invest their fair share for the electricity they consume and the infrastructure that delivers it. Fortunately, Maryland is already the first state in the nation to require data centers to pay for any infrastructure needed to connect their facility to the electric grid, as well as the capacity resources needed to generate the power. Ratepayers will not subsidize these costs.

With smart planning, this approach will benefit the Maryland ratepayer. Data centers pay to help modernize the grid, while the state encourages new energy generation.

The bottom line is simple: growth need not come at the expense of everyday customers. When large energy users pay their fair share, and states invest in reliable, local power generation, that growth can actually help strengthen the grid and ease long-term cost pressure.

Maryland has an opportunity to get this right in a way where other jurisdictions failed to do so—it can build data centers and stay focused on the main priority of protecting customers.

Orlan Johnson is Managing Member of TJC Consulting Group LLC.