From: Explaining the Grid - Substack

By: Matt Estes

Date: June 13, 2026

 

MITIGATING INCREASES IN THE PRICE OF ELECTRICITY CAUSED BY DATA CENTER DEMAND PART TWO

 

This is the second part of my two-part post on mitigating electricity price increases caused by data centers. My first post, dated May 12, explained the various ways that high data center demand for electricity does, and does not, increase the price of electricity. Today, I will provide my take on various options that have been proposed. Spoiler alert. Some of these are better than others.

1. Retail Rate Freeze. During the 2025 New Jersey gubernatorial campaign, Mikie Sherrill—the eventual winner of the election—promised to freeze electric rates in New Jersey. But, although retail electricity prices can’t go up if they are frozen, a rate freeze is not the answer to the data center demand problem. The electric utilities in New Jersey have very little control over the costs of the electricity they sell. They don’t own any generation facilities, and they purchase all of their capacity and energy from PJM’s wholesale markets at prices established in PJM’s auctions. A rate freeze would simply force New Jersey’s electric utilities to eat the increasing costs they have no control over but would have to pay to acquire electricity and deliver it to their retail customers. This would not be a good thing.

To see why, we can look to the California Energy Crisis of 2000-2001, when wholesale electricity prices skyrocketed due to defects in California’s competitive market design. Most people think that California consumers had to pay the high electricity prices prevailing at the time. In fact, however, the high prices were limited to the wholesale market. The California utilities that sold electricity to retail customers had previously agreed to freeze their retail rates for a period of time. This rate freeze was part of the complicated deal involving the formation of the California wholesale market and the introduction of competition to California.[1] Their retail rates were still frozen when the energy crisis hit, and as a result the utilities were forced to sell electricity to retail customers at prices significantly higher than the prices the utilities had to pay to purchase that electricity. The utilities incurred huge losses, threatening their financial viability. (continue reading)

 

MITIGATING INCREASES IN THE PRICE OF ELECTRICITY CAUSED BY DATA CENTER DEMAND PART TWO