How Electric Utilities Can Lead Through the Affordability Crisis

Amid a genuine energy affordability crisis, U.S. utilities appear largely committed to business as usual. Consumer electric bills are rising faster than inflation during a period of widespread economic uncertainty, and energy costs were a ballot issue in last fall’s gubernatorial races. Meanwhile, surging demands for power and a more resilient grid are pushing the system toward expensive overbuild, with utilities seeking $31 billion in rate hikes in the past 12 months. Utilities should draw on decades of pilot programs on demand flexibility and grid enhancing technologies to help solve the affordability crisis. If they do, they’ll earn well-deserved credit — and if not, they will most certainly deserve the blame.

Utilities are vital to scaling the AI industry, whose electricity needs are driving the sharp increase in U.S. demand forecasts. Governors want the expanded tax base that comes with data centers, but only if ratepayers are shielded from unnecessary spending. Similarly, the federal government wants to win the global AI race while cutting consumer energy bills through smarter load growth.

So far, the conversation about powering AI has focused almost entirely on building new generation. But the grid already has substantial unused capacity. Nationally, peak demand is roughly 850 gigawatts (GW), while average load sits just over half that level. The real challenge lies in fewer than 200 hours per year — typically during heat waves or cold snaps — when demand spikes. So this is not primarily a generation problem; it’s a utilization problem. The opportunity is to get far more value out of the grid we’ve already paid for.

Reframing the challenge this way represents a massive cultural shift — one utility CEOs must embrace if affordability is truly a priority. Nearly all solutions that can be deployed quickly and at dramatically lower cost are distributed and therefore nontraditional. But despite strong and consistent voter support, these resources remain the hardest for utility leadership to champion at scale.

The key to getting more out of the grid is to make it more flexible and controllable with a threefold approach. First, add energy storage — especially on the distribution system, at homes, businesses, and utility substations, but also on the transmission grid, where storage is quickly scalable. Second, reward consumers for providing demand flexibility from batteries, solar PV, electric vehicle chargers, smart electrical panels, and flexible loads. Third, deploy grid-enhancing technologies that unlock up to 25% more capacity from our existing transmission infrastructure. This is not technology for technology’s sake; these solutions are simply faster and cheaper than alternatives, and they’ve been fully rolled out in other countries.

Naturally, regulators must also modernize how utilities are rewarded. Nowhere is this more needed than with virtual power plants (VPPs), which can free up valuable capacity to accelerate data center interconnections while lowering customer bills. Despite years of hype and dozens of pilots, nearly 40 GW of VPP capacity sits mostly untapped because utilities and regulators haven’t figured out how to reward consumers for helping their neighbors through demand flexibility. With up to 160 GW of U.S. VPP capacity projected by 2030 — and mandates already in place in some states — this is no longer a niche issue.

With well-capitalized entrepreneurs and more than 400 utility VPP programs already underway, the challenge is no longer invention — it is scale. Yet regulatory approval processes can take years to advance beyond small pilots. In fairness, commissioners and staff can struggle to keep up with today’s electricity landscape, and our regulatory framework, rooted in the 1950s, only compounds the problem. Even so, legislative mandates mean little if implementation stalls at the regulatory level.

Utilities can accelerate regulatory outcomes by helping commissions make informed, evidence-based decisions. Today’s adversarial proceedings tend to yield narrow, self-interested proposals, with outcomes typically reflecting the dysfunction that produced them. What’s needed is a common framework for crafting effective regulatory policy — one that’s built on a clear understanding and shared vision of the role various technologies can play in energy systems. One such effort, led by the Energy Policy Design Institute, has mobilized a broad industry coalition and actively seeks utility engagement. (A related VPP policy workshop will be held at the NARUC Winter Policy Summit on Sunday, February 8.)

Moments like this highlight utilities’ indispensable role in the economy and in the daily lives of millions of Americans. Stepping up to solve the affordability crisis would earn utilities extraordinary public trust and goodwill, not least for the unwavering customer commitment it would demonstrate. And at an unpredictable moment in the energy transition — one where data center developers feel forced toward off-grid solutions — embracing VPPs and a more dynamic, resilient grid would leave utilities and their customers positioned for success no matter what the future holds.