By Avi Salzman

No AI magic trick is quite as impressive as the one it's doing in financial markets -- giving some utilities an upper hand with tech giants that are 100 times their size. It's a trick that investors can cash in on.

A handful of utilities are poised to profit from the rush of spending by big tech firms, locking in a decade or more of cash flows to provide power to data centers.

It's all the result of a potent new dynamic in the U.S. market for electricity. Tech companies are desperate to plug in their AI data centers, each of which can use 50 to 100 times as much power as the Empire State Building to run and cool their servers. In the past, utilities would hook data centers right into the grid like any other customer, and charge them a standard rate. But a political backlash against the warehouses sparked by soaring electricity prices is making that option untenable. So, tech companies are being forced to pick up more of the tab, signing deals that make them pay up even if AI proves to be a bust.

The issue even made it into President Donald Trump's State of the Union speech on Tuesday. "We're telling the major tech companies that they have the obligation to provide for their own power needs," he said. The goal is that "no one's prices will go up, and in many cases prices will go down for the community, and very substantially down," he said.

The utilities that have already made deals with tech companies say that consumers will receive a kind of data-center dividend, $100 or more in annual savings on their electricity bills. But the utilities themselves may be even bigger winners, as they lock in years of cash flow.

It's no secret by now that AI data centers use massive amounts of electricity, and they are only getting more power hungry. The data centers that are already under construction will need as much electricity as all of Italy, according to JLL, a commercial real estate and investment firm that tracks the industry and operates some data centers. The existing grid can supply some of that juice, but there's a limit. Eight of America's 13 regional electric grids are already at or below critical spare capacity levels, according to Goldman Sachs, raising the risk of blackouts if too many big customers plug in at once. As much as a quarter of expected data-center developments could end up short of electricity by 2028, according to Morgan Stanley analyst Stephen Byrd.

Tech companies are going to extraordinary measures to get that electricity, including using converted jet engines as power turbines and making special deals with Bitcoin mining companies to divert the crypto power to AI. But even those won't be enough, analysts say.

In general, it's good to own a commodity that's in short supply. Just look at Nvidia. Its chips have only gotten more valuable as demand has risen. But electricity is different. Utilities have an obligation to serve local customers at a reasonable price. Surging demand from other kinds of users can cause more problems than opportunities.

The biggest problem now is that electricity bills are on the rise as utilities build out the grid and add new generation to serve data centers. Average U.S. residential electricity bills are up more than 30% since 2020. In Virginia, known for its warehouse-filled "Data Center Alley," costs for all users are up an average of 17% in just the past year. Bills may continue to increase. The Edison Electric Institute, a trade group that represents investor-owned electric companies, projects that its members will spend $1.1 trillion from 2025 to 2029 on capital projects, nearly double the annualized rate at which they were spending in the prior decade. Someone has to pay for all of that investment.

Americans are increasingly blaming data-center operators for their rising bills, because it's expensive to build the power plants and transmission lines to serve them, and costs are often shared by everyone who uses the grid. At least a half-dozen state legislatures are debating bills that could stop new data centers from being built. The anxiety cuts across partisan lines. Sen. Bernie Sanders has called for a national moratorium on data centers, but they've also drawn fire from Florida Gov. Ron DeSantis, who wrote on X that "there isn't even close to enough grid capacity for these data centers. Consumers will see electricity rates spike -- and to what end?"

Trump himself has started paying much more attention to electricity costs, which are shaping up as a political liability ahead of the 2026 midterm elections. He had promised in 2024 to cut electricity costs in half in the first year of his term. Instead, average bills rose 6.3%.

On its face, this kind of attention looks like bad news for utilities. Rising costs and decreasing reliability are a dangerous mix for an industry that isn't particularly popular even in good times. But the political pushback against data centers has lately been falling more on the tech companies than on the utilities. Data centers have become "the villain," Jefferies analyst Julien Dumoulin-Smith argues.

It isn't hard to see why. Compared with such past buildouts as America's railroads, data centers do little for local economies. They bring a fraction of the jobs to the towns where they're built, and consume resources like power and water. More than $150 billion worth of data-center projects have been delayed or canceled since 2023 because of community pushback, according to Data Center Watch, a research firm backed by AI security company 10a Labs.

The tech giants are starting to realize this is a vulnerability. After previously fighting utility plans to make them pay more for power, tech executives have said this year that they're prepared to take on more of the burden. In January, Microsoft President Brad Smith announced a "Community-First AI Infrastructure" plan meant to dampen the pushback. The first tenet of the plan is that "we'll pay our way to ensure our data centers don't increase your electricity prices."

"Especially when tech companies are so profitable, we believe that it's both unfair and politically unrealistic for our industry to ask the public to shoulder added electricity costs for AI," he wrote.

Amazon.com and other tech giants made similar commitments to pay their own way. If the tech firms hold true to these pledges, the benefits will flow through to consumers. But they'll also help utilities, whose earnings growth rates already are turning higher.

"If you're at the utility, you're able to benefit from this moment of political pressure that fell onto the hyperscalers," said Rodney Rebello, a portfolio manager focusing on utilities at Reaves Asset Management. "They have to pay more. And now you can effectively run behind that."

The utilities that are benefiting the most tend to be in unexpected places, outside the historical data-center growth areas like northern Virginia. In fact, 64% of data centers under construction are in so-called "frontier" markets, from the Midwest to the South, according to JLL. Tech companies are drawn to these markets by friendly regulations, available power, and tax breaks.

NiSource, a publicly traded electric and natural-gas utility that operates in Indiana and five other states, may be the best example of a utility that's embracing the moment.

In 2024, the fast-moving world of data centers showed up at the doorstep of a sleepy NiSource subsidiary called Nipsco in northern Indiana. Nipsco serves about 500,000 electricity customers including a few industrial plants along Lake Michigan. All of its customers combined use about 2.4 gigawatts of power capacity, or as much as is provided by two to three large nuclear reactors. But two years ago, it started getting inquiries from data-center developers asking for much more power.

Added together, the prospective customers were likely to more than double the area's power demand in just a few years. At the high end, the new customers could have added as much as eight gigawatts of new demand, says Nipsco President Vince Parisi. Tech companies were attracted to the area's friendly regulatory environment, proximity to Chicago, abundant water supplies, and fiberoptic network.

That kind of sudden, enormous demand surge is a mixed blessing. Adding eight gigawatts of new demand to a 2.4 gigawatt system is like chaining an M1 Abrams tank to a Toyota Camry and expecting the two vehicles to drive calmly down the highway together. In theory, data-center deals could supercharge Nipsco's earnings growth, with the company building large new power plants and earning regulated returns on the value of their infrastructure. But it could also leave Nipsco on the hook for billions of dollars in liabilities if the data-center developers walked away after the infrastructure was already built. When a power plant is abandoned, the financial burden tends to fall on consumer bills.

Nipsco didn't want to turn these new customers away. So, it created a new subsidiary called GenCo, whose sole purpose would be to serve the biggest customers, keeping the impact away from their normal mom-and-pop customers.

In November, GenCo inked its first deal with Amazon, a plan to build 2.6 gigawatts worth of natural-gas power plants and 400 megawatts worth of battery storage -- more than Nipsco's entire existing system. Amazon's data centers are expected to draw about 2.4 gigawatts worth of power, with the excess generation being sent to the rest of the grid. Amazon is expected to pay for the full cost of the generation, plus its share of transmission costs and other "shared system charges."

The buildout is expected to cost nearly $7 billion, and the contract lasts 15 years -- though Amazon will have an option to back out of part of it by 2029. Nipsco told regulators that it expects to be able to send $1 billion back to customers over the course of the contract, amounting to a discount on their bills of $7 to $9 a month.

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February 25, 2026 11:54 ET (16:54 GMT)

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