TOPIC #5
Electricity Affordability in Focus
The utility industry engages with regulators, policymakers, and customers about a critical issue.
Regulators and the Utility Industry Weigh In
Affordability—in current parlance, comprising the real or perceived ability to maintain a standard of living or afford necessities—is top of mind among many Americans.
Concern about rising energy costs has been a point of increasing interest among regulators and policymakers. In recent comments at a June 3 CLEANPOWER Conference, NARUC president Rendahl noted that regulators are proactively addressing affordability by:
- Examining utility cost discipline and closely reviewing investments in rate cases
- Approving large-load tariffs
- Increasing emphasis on energy efficiency and demand response programs
- Increasing emphasis on customer assistance programs
Ensuring affordability is not new to utilities, but it gains increased emphasis in a time of growing load and increased infrastructure investment. At the Edison Electric Institute’s annual meeting in June, utility CEOs emphasized the need to balance safety, reliability, resilience, and growth with affordability as a central consideration.
Key Takeaways
Affordability, including energy affordability, remains a concern among customers and a priority for utilities and their regulators.
A recent Berkeley National Lab report on drivers of retail electricity costs cites multiple factors and geographic differences. There is no single national driver: cost pressure is a mix of infrastructure, fuel, market, weather, and policy effects that differ by region.
The impact of data centers, often cited as a significant driver of energy costs, is uncertain and requires more nuanced and detailed study looking at utility-level cost of service.
Drivers of Retail Price Trends: A Recent Analysis
In October 2025, Lawrence Berkeley National Laboratory (LBNL) released a study summarizing trends in retail electricity prices. The study explored some of the most common drivers of state-level price changes over the past year and cost driver/price relationships since 2019. That study was updated and expanded with additional reports in 2026.
According to the reports, recent utility cost growth reflects a layered mix of infrastructure, fuel, market, weather, and policy-driven pressures. The reports note that national averages obscure substantial differences by state and region: some jurisdictions have experienced limited real-dollar change, while others face significant rate pressure from localized cost drivers.
- Infrastructure investment is the most persistent structural driver. Distribution and transmission spending have increased materially, especially for aging asset replacement, reliability, resilience, grid hardening, and storm or wildfire mitigation.
- Distribution cost growth is increasingly capital intensive. Planned spending is focused more on managing and upgrading the existing system than on capacity expansion or like-for-like replacement alone.
- Fuel and wholesale power costs remain major short-term drivers. Natural gas price volatility continues to affect retail prices, particularly in regions with high gas exposure or wholesale market pass-through.
- Weather and wildfire costs are significant regionally. Storm recovery, wildfire mitigation, vegetation management, insurance, and hardening are large contributors in specific states.
- Load growth can help or hurt. It can spread fixed costs over more sales but may raise rates when it triggers new capacity, transmission, or distribution investment, depending upon rate structures.
FIGURE 1
Trends and Drivers of Retail Electricity: Summary of Key LBNL Findings
Source: LBNL/Brattle Group, Retail Electricity Price Trends and Drivers: Data Update–2026 Edition (Apr. 2026), at p. 4
Multiple Groups Look at Data Center Impacts on Energy Prices
The role of growing large loads, particularly data centers, has been a point of political interest, with increased scrutiny of data center deployments and utility efforts to serve those customers. Recently, several organizations have examined the role of data centers on energy costs.
One theme: electricity cost pressure is real and broad-based, and data centers are an important accelerant in some markets, but they are not the only driver, and their rate impact is highly context specific.
- Several papers and articles described rising affordability concerns tied to rapid load growth, grid upgrades, generation needs, and rate design questions.
- However, one report argues that current state-level evidence does not show data centers driving higher retail electricity prices, even though data center load is growing rapidly.
A summary of key points of agreement and disagreement among papers is shown in Figure 2.
A paper commissioned by the Energy Systems Integration Group (ESIG) provides a balanced view: large loads can raise, lower, or leave rates unchanged depending on (a) system headroom, (b) incremental cost of new infrastructure (versus a system’s average embedded cost), (c) wholesale market price exposure and market dynamics, (d) load forecast accuracy, and (e) tariff design.
FIGURE 2
Comparison of Selected Papers on Rate Impacts from Data Centers
Sources: Brookings Institution; E3; ESIG-Brattle Group; EESI; Dallas Fed; IER; S&P Global
A More Nuanced View with Specific Analysis Required
Broad statements that “data centers raise rates” oversimplify the dynamics, and more granular and region-specific analysis is required and should be a focus of future study.
- First, some studies or commentary focused on negative affordability impacts relied upon correlation rather than causation. Multivariate analysis is needed to disentangle effects of other drivers of utility costs. Further, a comprehensive cost of service analysis would yield the most accurate view of factors impacting customer rates.
- Second, affordability has varied and specific measures (e.g., utility bills, percentage of household expenditures, etc.) and is not demonstrated simply by the growth in utility costs and must be examined in context with other variables.
- Moreover, as shown in Figures 3 and 4, there is a wide spectrum of both absolute residential electricity cost levels and cost growth depending upon the state. A state- or utility-level view is needed rather than a national or regional average.
An area of agreement among analysts is that the current load-growth era has fostered a cost allocation, planning, and load forecasting challenge. According to one analysis, the pace of change is a key forward-looking risk. Risk mitigation tools such as large-load tariffs as well as regularly updated cost allocation should be addressed and updated as needed to minimize unintended ratepayer impacts.
FIGURE 3
Average Residential Electric Revenue (¢/kWh) (2025)
Sources: EIA; ScottMadden analysis
FIGURE 4
Average Residential Electric Revenue/kWh Compound Annual Growth Rate (2020-2025) (%)
Sources: EIA; ScottMadden analysis
Implications
Affordability pressure is becoming more infrastructure driven, more regionally differentiated, and more dependent on regulatory choices. Cost containment will increasingly depend on how utilities plan, justify, prioritize, finance, and recover large capital programs. Capital discipline will grow in importance, as regulators will increase scrutiny on planned utility investments.
The narrative of national averages and selected attribution masks important jurisdictional differences. Transparency and specificity in the need, rationale, and types of investments and operating costs will help in utilities’ justifications to regulators and customers. Active engagement of and communication with stakeholders about a utility’s unique circumstances will help differentiate the broad narrative from the needs of the particular utility.
As large loads grow and electrification continues to expand, the industry will need to study impacts on costs and the effectiveness of mechanisms aimed at limiting risk of cost-shifting between rate classes.
CONTACT OUR EXPERTS
On Electricity Affordability in Focus
Josh Kmiec
PARTNER
joshuakmiec@scottmadden.com 919.781.4191
Andrew Cottrell
PARTNER
acottrell@scottmadden.com 919.781.4191
Kevin Hernandez
PARTNER
klhernandez@scottmadden.com 919.781.4191
RECENT INSIGHTS
Available at scottmadden.com
ScottMadden posts energy and utility industry-relevant content and publications on a regular basis. The list below is a sample of recent insights prepared by our consultants.
