America’s electric utilities are preparing for the surge in electricity demand coming with the data centers powering AI. Utilities have increased investments as they see unprecedented demand growth in the coming years after two decades of flat U.S. electricity consumption.
But they are grappling with increased levels of uncertainty because not all requests for interconnection they receive will materialize in actual data centers, necessitating electricity supply.
Phantom Data Centers
Hyperscalers and AI-focused tech groups are sounding out the utilities in the areas they are considering for future data centers, and are filing requests for interconnection of one data center with several utilities in several areas.
The huge number of requests does not paint an accurate—or full—picture of the power needs of the technology giants because companies tend to inquire about data center power supply with at least three utilities in different areas.
Of these three requests for new power capacity, only one will become a project for which agreements will be signed. Analysts and utilities cannot reliably say how much new capacity is needed, considering that one data center project pitches electricity supply requests to different utilities in different states.
After one site is picked, all the other previously proposed locations – and the interconnections – will never be built. These would be “phantom” data centers, which will never see the light of day, but which are currently haunting the projections and plans of the U.S. utilities.
So, electric utilities face a high degree of uncertainty over future revenues as the boom of AI data centers generates widely varying forecasts of peak demand in many areas across the country.
If utilities overestimate their future demand, they risk overbuilding new capacity that will not be met by consumption. A possible overbuild would come at the expense of the American ratepayers, who have already seen electricity prices rising at a faster pace than U.S. inflation over the past three years.
Puzzled Utilities
The phantom data centers and the speculative projects are making projections difficult for utilities.
For example, Sempra’s Texas-based utility Oncor said its active large commercial and industrial (LC&I) interconnection queue as of June 30, 2025, was about 38% higher than at the same time last year. As of June 30, Oncor’s active LC&I interconnection queue had 552 requests, which includes approximately 186 gigawatts (GW) from data centers and over 19 GW of load from diverse industrial sectors.
American Electric Power Company, which serves over 5 million customers in 11 states, said it now has 24 GW of firm customer commitments for incremental load by the end of the decade, up from 21 GW previously, thanks to data center growth, reshoring, and manufacturing.
“Beyond the 24 gigawatts, customers are also actively seeking to connect approximately 190 gigawatts of additional load to our system. This is five times our current system size of 37 gigawatts,” AEP president and CEO William J. Fehrman said on the Q2 earnings call.
U.S. power utilities are investing a record amount of money into transmission and grid connection. But current forecasts of AI-driven power demand vary so much that there is a massive margin of error, analysts and utility officials told Reuters Events in June.
The U.S. market faces “a moment of peak uncertainty,” according to Rebecca Carroll, Senior Director of Market Analytics at energy advisor Trio.
The latest report from the U.S. Department of Energy (DOE) puts data center consumption at anywhere between 6.7% and 12% of total U.S. electricity by 2028.
“The report estimates that data center load growth has tripled over the past decade and is projected to double or triple by 2028,” DOE said.
However, there is a huge difference between double or triple growth in data center load.
This has prompted utilities to demand clear demand estimates from data centers for future connections and power purchase agreements (PPAs), to reduce the risk of getting demand and/or prices wrong.
AI Drives U.S. Power Demand Growth
“We know not all of that is going to come online, but even a fraction of that is significant,” AEP’s chief financial officer, Trevor Mihalik, said on the earnings call.
U.S. power utilities have announced billions of dollars in capital plans for the next few years and are getting a lot of requests from commercial users, most notably Big Tech, for new power capacity in many areas next to planned data centers.
Onshoring of manufacturing activity and AI-related data centers are driving an increase in U.S. electricity consumption, Goldman Sachs said in a report earlier this year.
U.S. electrical power demand is expected to rise by 2.4% each year through 2030, with AI-related demand accounting for about two-thirds of the incremental power demand in the country, the investment bank said.
The world’s biggest economy will need all energy sources to ensure power demand is met. Natural gas is the biggest near-term winner of AI advancements, but renewables will also play a key role in powering the data centers of next-generation computing, analysts say.
By Tsvetana Paraskova for Oilprice.com
