Southern CEO Warns of "Revolution" Over Soaring Power Costs

Southern CEO Chris Womack warns of a potential "revolution" in the US if power bills don't become cheaper due to soaring costs associated with AI demand. He emphasizes the need for affordable pricing to avoid an affordability crisis. The US power costs jumped 5.8% in the past year, driven by data center expansion, greater electrification, and tight supply. Utility executives, including Consolidated Edison and Exelon, have expressed concerns about the issue.

Southern CEO Chris Womack has warned of a potential "revolution" in the US if power bills don't become cheaper, citing the soaring costs associated with AI demand. The US power costs have jumped 5.8% in the past year, driven by data center expansion, greater electrification, and tight supply. Utility executives, including Consolidated Edison and Exelon, have expressed concerns about the issue.

The latest power auction results from PJM Interconnection LLC, which operates the largest US power grid, have highlighted the magnitude of the problem. Businesses and households served by the grid will spend a record $16.1 billion to ensure electricity supplies amid a massive AI-driven demand surge. The daily capacity price was set at $329.17 per megawatt, a significant increase from the previous $269.92 [1]. This surge in demand has led to soaring utility bills and disagreement over which resources are best equipped to satisfy those needs.

The AI boom is spurring the biggest surge in power demand in decades, leading to a 1.5% to 5% increase in consumer electricity bills, according to Executive Vice President Stu Bresler of PJM. "Customers are frustrated by high energy costs and I share their frustration," said Calvin Butler, chief executive officer of utilities owner Exelon Corp. [1].

The capacity auction has a compounding impact on customers as rising demand, shrinking supply, and aging infrastructure add to costs. To address the shortage, Exelon has proposed building power plants instead of only buying supply from others in the capacity auction and then passing those costs directly to ratepayers.

The shares of independent power producers such as Constellation Energy Corp., Talen Energy Corp., NRG Energy Inc., and Vistra Corp. gained in late trading Tuesday after PJM released the auction results. Talen's shares rose more than 10% in early trading in New York on Wednesday, while the other four were up more than 4%. Power generators predicted a jump in revenues as a result of the auction. Constellation said it expected to earn almost $2.2 billion over the year, while Vistra forecast $1.2 billion and Talen sees $805 million [1].

The results of the auction come amid a debate over older fossil-fuel plants that had been expected to retire. The Trump administration has already moved to keep plants afloat, contending that they're needed for grid reliability, while also phasing out tax credits for renewables. Yet, with those subsidies expiring at a time of record auction prices, solar and wind developers will likely try to build everything they can in the next two years [1].

Meanwhile, Taiwan Semiconductor Manufacturing Co. (TSMC), a key player in the semiconductor industry, has reached a market value of $1 trillion, driven by robust financial performance and optimism over the AI boom. The company's shares have surged by nearly 50% since April, reflecting growing investor confidence in its ability to capitalize on the AI boom and the tightening race for AI manufacturing capacity [2].

The average electricity rate in the United States is 12.89¢ per kWh, but this varies significantly by state. Hawaii has the highest rates for electricity with 42.34¢/kWh for residential and 38.29¢/kWh for commercial customers, while North Dakota has the best rates with 10.21¢/kWh for homes and 7.18¢/kWh for businesses [3].

The current trend of increasing power costs due to AI demand underscores the need for innovative solutions to ensure affordable and reliable electricity for all. The industry is coalescing around new plants as a way to alleviate potential shortfalls, but such efforts risk adding to household costs at a time when politicians are sensitive about energy inflation.

References:
- [1] https://finance.yahoo.com/news/ai-boom-keeps-key-power-201426996.html
- [2] https://www.ainvest.com/news/tsmc-market-hits-1-trillion-optimism-ai-demand-2507/
- [3] https://www.electricchoice.com/electricity-prices-by-state/