AI Data Center Boom Drives Electricity Costs Higher for U.S. Manufacturers

BY MIRABEL ODETA

A rapid expansion of artificial intelligence data centers is driving electricity costs sharply higher for manufacturers across parts of the United States, creating new financial pressures for factories that rely on affordable and reliable power to remain competitive.

Among the companies feeling the impact is the Belden Brick Company, a 141-year-old manufacturer based in Sugarcreek, Ohio. Known for producing bricks used in landmark buildings such as the The Alamo and University of Notre Dame, the company has watched its electricity costs soar after years of relatively stable prices.

According to company president Brad Belden, overall electricity expenses increased by roughly 90% over the past year. Much of that increase came from a monthly capacity charge, which jumped from about $1,600 to nearly $12,000. Capacity charges are fees designed to ensure power producers maintain enough generating capacity to meet electricity demand during periods of peak usage.

Belden said the increase came as a shock and has already forced the company to raise brick prices by about 4%. Even with higher prices, profit margins have narrowed significantly, raising concerns about the long-term sustainability of manufacturing operations if electricity costs continue climbing.

The company’s experience reflects a broader trend affecting factories throughout America’s industrial heartland. Manufacturers in several Midwestern and Mid-Atlantic states are reporting rising power bills as electricity demand accelerates, driven largely by the construction of massive data centers supporting artificial intelligence and cloud computing services.

Unlike many businesses, manufacturers depend heavily on electricity to power production equipment, making energy one of their largest operating expenses. While residential customers have also experienced higher utility bills, industrial electricity prices have risen even faster in regions experiencing rapid data center development.

Many of the largest technology companies, including Meta Platforms and Amazon, continue investing billions of dollars in AI infrastructure that requires enormous amounts of electricity. Modern data centers often consume as much power as entire towns because they operate thousands of servers around the clock to process artificial intelligence workloads and cloud services.

Utilities charge large electricity users capacity fees to ensure enough generation is available during periods of heavy demand while also encouraging investment in new power plants. For residential customers, these charges generally account for around 10% of a monthly bill. Manufacturers, however, often pay a much larger share because of their constant and energy-intensive operations.

The sharpest increases have occurred within the territory served by PJM Interconnection, the nation’s largest regional electricity grid operator. PJM manages electricity transmission across 13 states stretching from New Jersey through the Midwest, covering major manufacturing centers in Ohio, Pennsylvania, Indiana, Illinois and other industrial states.

Last week, PJM was forced to implement emergency measures, including requesting that some customers voluntarily reduce electricity consumption, after extreme summer temperatures pushed power demand to record levels and raised concerns about potential rolling blackouts.

According to PJM, one of the biggest challenges is that new data centers can be built much faster than new power plants and transmission infrastructure. As electricity demand rises more quickly than available supply, wholesale capacity prices have surged dramatically.

PJM’s capacity market illustrates the scale of the increase. Prices paid to ensure future electricity availability rose from approximately $28.92 per megawatt-day in 2024 to more than $329 per megawatt-day, representing an increase of more than 1,000%. Those higher wholesale costs are ultimately passed through to many industrial customers.

The impact has been particularly noticeable in states that are both manufacturing centers and emerging hubs for AI data center development. Industrial electricity prices increased by roughly 31% in Pennsylvania and 26% in Ohio over a one-year period, well above the national average increase of about 7%. Residential electricity prices also rose, though at a slower pace.

Industry experts warn that even relatively small increases in electricity costs can significantly affect manufacturers, many of which operate on narrow profit margins while consuming large amounts of energy every day.

Paul Cicio, who leads the manufacturing advocacy group Industrial Energy Consumers of America, said sustained increases in energy costs could influence whether factories continue operating, expand production or move facilities elsewhere.

Other manufacturers are also seeing dramatic increases. Plastic products manufacturer Plaskolite reported that annual capacity charges at facilities in Ohio and Pennsylvania climbed from roughly $200,000 to nearly $1.2 million in just one year. Company officials are now evaluating whether generating more of their own electricity using natural gas could reduce dependence on the power grid.

Meanwhile, electronics materials manufacturer Tosoh SMD is exploring ways to shift more production to overnight hours, when electricity rates are generally lower. Company officials say changing production schedules may help reduce energy expenses while maintaining competitiveness.

The growing strain on the electricity grid has prompted regulators and lawmakers to examine ways to ensure large data centers pay a greater share of infrastructure costs. Federal, state and local governments are considering new policies designed to protect residential customers and small businesses from rising electricity prices linked to expanding AI infrastructure.

However, manufacturers argue many of those proposals unintentionally place factories in the same regulatory category as massive data centers, despite the industries serving very different economic purposes.

The Federal Energy Regulatory Commission is currently considering rules that would require certain companies with their own onsite power generation to pay transmission charges even for electricity they generate themselves. Manufacturing groups are urging regulators to exempt industrial facilities, arguing the proposed changes are primarily intended to address challenges created by large-scale data centers rather than traditional factories.

Across the country, at least ten states are also reviewing policies aimed at managing electricity demand from AI facilities and other large users. Manufacturing organizations say lawmakers should carefully distinguish between technology companies building energy-intensive server farms and factories that produce physical goods and support thousands of industrial jobs.

For Belden Brick, the uncertainty has already forced difficult business decisions. Along with increasing product prices, the company is now evaluating whether investing in onsite power generation could reduce dependence on the regional grid and provide more predictable energy costs.

Belden believes access to affordable electricity will increasingly determine whether manufacturers can continue expanding in the United States. As AI infrastructure continues growing and electricity demand reaches new highs, many factory owners say maintaining reliable and reasonably priced power may become one of the industry’s biggest challenges in the years ahead.