Did your last electricity bill give you a shock? If so, you’re not the only one! Households across the United States are contending with the high cost of energy. Recent reports state that the average energy bill in the U.S. has increased from $121 to $156 per month in the last five years.
This article takes a close look at exactly why the average price of utility bills is on the rise.
How much has the average energy bill gone up by?
The average energy bill went up by 31.4% from 2020 to 2025, according to the U.S. Energy Information Administration (EIA). Within the last year, residential electricity prices increased by approximately 4.8 percent.
Analysts don’t expect prices to drop or stabilize any time soon. The most recent figures from the EIA’s U.S. Electricity Price Forecast predicts that the cost of electricity will jump from 2025’s rate of 17.30 cents per kiloWatt hour (/kWh) to 18.00 cents /kWh in 2026, and could reach 18.45 cents /kWh by 2027.
What’s causing U.S. electricity rates to rise?
In the last few years, rising electricity costs have become a challenge for households and a key issue for policymakers. The rise in the average price of utility bills has been so dramatic in some states that political leaders have taken unprecedented steps to reduce costs for residents.
One example was New Jersey Governor Mikie Sherrill’s pledge to declare a State of Emergency on Utility Costs as her first act in office. On taking office, Governor Sherrill issued two executive orders to freeze rate hikes and lower bills by expanding power generation.
And Governor Sherrill isn’t the only political figure to take action. Almost a dozen states, from California to Massachusetts to Nevada, have introduced bills to combat rising energy costs.
So, what’s going on? Why has there been a steady climb in energy costs across the United States recently?
There’s no single reason why electricity is becoming more expensive in the U.S. The average utilities cost varies significantly from state to state, depending on: climate, energy sources, and local regulations. But there are other factors working to ramp up the average energy bill.
America’s grid infrastructure is getting old
If we look at past data, the demand for electricity in the U.S. grew pretty slowly between 1990 and 2024. This meant that utility companies across the country didn’t need to invest in upgrading infrastructure. Deferring modernization costs kept energy rates low, but much of the U.S. electrical grid now needs to be modernized or expanded and is straining under the weight of increased demand.
Companies are now having to invest heavily in upgrading local electricity distribution networks. Utilities companies in the U.S. invested $115 billion in the electricity grid in 2025, accounting for one-quarter of the global total spend.
How do the energy companies recoup those costs? You guessed it - by raising rates for the consumer. Which pushes up the average energy bill.
Inflation is hitting electricity costs
Inflation is a significant factor in driving up the cost of electricity. Since the height of the COVID-19 pandemic in 2021, the price of almost everything has gone up. Energy is no exception.
While electricity prices are now more or less in line with the rate of inflation, this isn’t evenly spread across the country. Washington, DC, has seen a 28% rise in rates due to inflation. When adjusted for inflation, California’s rates went up by 46%. Some states, however, like South Carolina and Idaho, have actually seen rates go down.
There isn’t a simple solution. Fixing electricity affordability means taking actions that address each state’s specific circumstances.
The cost of electricity is tied to natural gas and international conflicts
Current figures show that natural gas is used to generate around 40% of all electric power in the U.S. Because of that, when natural gas prices rise, electricity prices often rise too.
Natural gas costs have been rising steadily due to a mix of factors including a colder than expected winter and increased worldwide exports impacting domestic supply. International tensions and disruptions can also put additional strain on energy markets, which can also affect the price to power your home.
Gas prices in October of 2025 were up by 45% compared to 2024, and analysts predict that they could rise by another 16% by the end of 2026.
This isn’t great news, as most utility companies pass 100% of these costs on to the consumer. Despite federal and state government initiatives to limit the impact of high natural gas prices, electricity rates are still rising as a result.
Extreme weather is impacting energy prices
If you think the weather has been acting a little weird lately, you’re right. And if you suspect this affects electricity rates and/or energy usage, you’d be right again.
Extreme weather events like wildfires, hurricanes, heatwaves, or winter storms have a massive impact on the utility sector. Critical infrastructure is destroyed and demand surges, placing a strain on the existing infrastructure (which, as mentioned earlier, is barely coping anyway).
There’s a fair amount of expense related to replacing downed powerlines or damaged substations, not to mention increased insurance costs. Once again, the utility companies pass these costs directly on to consumers.
How AI data centers are driving up demand for electricity
AI and the Large Language Models (LLMs) require massive amounts of computing power. This power comes from large-scale data centers that constantly operate thousands of servers, cooling systems, and networking equipment.
Just how much energy does AI use? A lot. A big data center can use as much electricity as an average-sized city.
Studies have shown that data centers consumed 176 terawatt hours (TWh) of electricity in 2023, about 4.4% of total U.S. electricity consumption. Currently, there are 577 data centers across the country with 668 more planned for development within the next year. By 2028, data centers are projected to need up to 580 TWh of electricity, accounting for up to 12.0% of total U.S. electricity consumption.
For some states, AI energy consumption is causing a huge surge in the price of electricity. Virginia, for example, has more data centers than anywhere else on the planet and consequently has seen electricity prices go up by 13% within the last year. Other states with high concentrations of data centers have experienced similar price hikes. Research from Bloomberg showed electricity costs are 267% higher now than they were five years ago in areas with large amounts of AI data centers.
In response, policymakers are no longer just discussing possible protections for households - the White House announced on March 5, 2026 that several major AI and tech companies signed a “Ratepayer Protection Pledge.” According to the administration, the pledge commits those companies will pay for the new electricity generation required by their data centers, rather than passing those costs on to residential ratepayers. The White House says the goal is to support AI growth without raising electricity bills for families and communities, though the long-term effect on consumers remains unclear depending on how everything plays out.
The bottom line: The average price of utility bills will continue to rise
For U.S. households, the cost of electricity has surged over the last five years. The rising cost of power has had a dramatic impact on residential power bills. As we mentioned earlier, the average energy bill in the U.S. has gone up from $121 to $156 per month in the last five years, which is over $400 per year in higher energy costs for the average household. Some households are now paying $260 to $300 per month in energy costs.
A variety of factors have contributed to the spike in the cost of energy. Inflation has played a role in pushing up energy prices. The cost of natural gas has made producing electricity more expensive.
Most of the core grid infrastructure across the U.S. is 50 to 70 years old. Transmission lines, power transformers and substations built in the 1950s and 1960s are past their use-by date and some simply cannot handle the increased demand for electricity.
Demand is increasing. Extreme weather events and AI data centers are driving up the demand for energy. The five-year electricity demand forecast for the U.S. has increased from 23 GW to 128 GW. Researchers expect demand to rise by a further 15.8% by 2029.
What can you do to bring your energy bills down?
What can the average household do? One of the best ways to drastically cut your energy costs is to install solar at your house and start generating your own, clean energy.
Researchers from the Lawrence Berkeley National Laboratory (LBNL) found that solar panels can significantly lower the average energy bill for 76% of U.S. households. The LBNL study found that a typical American household could potentially save up to $1,987 on annual electricity costs by installing rooftop solar.
If you want to know more about going solar, get in touch with Switch Together. Our team can show you how solar power can help you slash your electricity bills.