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DEREGULATION, NOT DATA CENTERS, BROKE THE GRID  
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Edgardo Sepulveda
September 16, 2026
Jacobin
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_ Electricity bills are rising, and data centers are getting the
blame. But for 50 years, the American grid absorbed loads this large
while real prices fell. The difference between then and now?
Deregulated markets. _

Data centers show how deregulated electricity markets risk pitting
growth against affordability. Decarbonizing will require decades of
load growth — which the grid once absorbed as real prices fell.
Regulated power delivered both before and can again., (David Paul
Morris / Bloomberg)

 

The public attribution of blame
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for rising electricity costs is half right. Data centers are indeed
driving the first sustained surge in American electricity demand in
more than a generation. But the historical record shows that
electricity demand — what the industry calls “load” — has
grown this quickly before without pushing prices up. What is different
this time is not the load itself but the fact that it is landing on
deregulated electricity markets that were never built to absorb
growth.

Today, about a third of US retail electricity sales are in deregulated
markets; the rest are served by traditional regulated utilities. That
institutional variation — the same load growth running through two
different market structures at the same time — is why economists
can compare the bills.

A Century of Growth With Falling Prices

From an electricity perspective, aluminum smelters were the world’s
first data centers. Aluminum is sometimes called “solid
electricity” because of how electricity-intensive it is to produce:
the metal is extracted from alumina through an electrolytic process
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More than two hundred primary smelters operate worldwide today,
drawing about 4 percent
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of global electricity — more than double the roughly 1.5 percent
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data centers consume.

The United States led world production for most of the twentieth
century. By 1943, sixteen American smelters accounted for 43 percent
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of global output while drawing about 8 percent
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of national electricity generation. That works out to a full 0.5
percent of national electricity generation for each individual
smelter, on average. In relative terms, no data center operating today
matches that share.

The following author-compiled figures show how the traditional
relationship between electricity prices and generation growth broke
down in the age of deregulation, or “restructuring,” as the
industry calls it. Figure 1 tracks the real, inflation-adjusted
electricity consumer price index for the United States and, as a
comparator, Canada, over more than a century. Both lines fall for
roughly fifty years — through a depression, a world war, and the
most concentrated period of electrification either country has
seen — ending up around two-thirds below where they started. That
decades-long decline ended in the early to mid-1970s amid the era’s
energy crises and the broader economic turmoil that accompanied them.

[Inflation-adjusted electricity consumer price indexes for the United
States and Canada, 1922–2026]
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Author’s calculations. US: Bureau of Labor Statistics, CPI-U series
for electricity and all items. Canada: Dominion Bureau of
Statistics/Statistics Canada, CPI for electricity and all items.
Electricity-price indexes were divided by the corresponding all-items
CPI and rebased to 1922 = 100.

Figure 2 shows how much electricity generation grew over that same
period. Starting from 1922, US consumption first doubled by 1936, a
fourteen-year span that included the Great Depression. It then doubled
again in just seven years, by 1943, followed by successive doublings
in ten years (1953), nine years (1962), and ten years (1972). The pace
then slowed sharply, with the next doubling taking twenty-four years,
arriving in 1996. Load stayed essentially flat from the early 2000s
until growth resumed in 2022. Five doublings in fifty years is a far
larger shock than anything the AI build-out is projected to
deliver — and they occurred while prices were falling.

[Electricity generation indexes in the United States and Canada,
1922–2026]
[[link removed]]Author’s
calculations. US: Historical Statistics of the United States and U.S.
Energy Information Administration. Canada: Historical Statistics of
Canada and Statistics Canada. Annual generation was indexed to 1922 =
1.0.

Figure 3 plots the relationship directly, comparing the annual
percentage change in US generation and in real prices over the past
century. From 1922 to 1973, generation grew by an average of 7.7
percent a year while real prices fell by an average of 1.7 percent.
From 1974 to 2025, growth slowed to an average of 1.7 percent a year
and the real price decline nearly vanished, averaging just 0.2
percent. For most of the century the two lines are a rough mirror
image. Steady, predictable, substantial generation growth went
together with falling real electricity prices, and when the growth
disappeared, so did the price declines.

[Percentage change in US electricity consumer price index and
generation]
[[link removed]]Author’s
calculations: Bureau of Labor Statistics, CPI-U series for electricity
and all items. US: Historical Statistics of the United States and U.S.
Energy Information Administration for power generation. Both series
smoothed using LOESS (FRAC=0.09; IT=3).

What Deregulation Broke

That mirror image was a product of institutional structure based on a
political-economic compromise. Vertically integrated utilities —
combining generation, transmission, and distribution within a monopoly
franchise area — captured the economies of scale that came with
growth. Economic regulation required that some of the efficiency gains
be shared with consumers in the form of lower prices. A large new
industrial load was therefore an opportunity: it increased generation
utilization and spread fixed costs across more sales, pushing down
average regulated prices.

Restructuring, which began in the US electricity sector in the late
1990s, severed that link. The old integrated utility model was broken
up in states that deregulated. Generating electricity became a
separate business, open to competition, while transmission and
distribution remained regulated. Competitive wholesale power prices
were then set through auctions that price power at the margin. New
load appears to shift the demand curve upward in generation markets,
raising wholesale energy prices, which were then mostly passed on to
consumers through higher retail prices.

Figure 4 zooms in on the period from 1999 to 2025 and shows how
quickly the century-old relationship came apart. By 2007, prices and
generation were moving together rather than in opposite directions,
and since 2020 both have risen in tandem. That is the signature of a
system in which new load pushes prices up.

[Percentage change in US real electricity consumer price index and
generation, 1999–2025]
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Author’s calculations: Bureau of Labor Statistics, CPI-U series for
electricity and all items. US: Historical Statistics of the United
States and U.S. Energy Information Administration for power
generation. Both series smoothed using LOESS (FRAC=0.09; IT=3).

This is not only a pattern in the aggregate data. A June 2026 study
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identifies a causal effect, and — this is the part that
matters — it is not universal. Data center entry raised average
retail electricity prices by a statistically significant 6.1 percent
among privately owned utilities in deregulated states, compared with
no statistically significant increase among publicly owned utilities
in regulated regions. A March 2026 study
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mechanism at the wholesale level, with data centers raising
competitive wholesale prices in deregulated supply-constrained regions
while having negligible effects elsewhere. The same load, arriving in
two different market structures, produces two different bills.

It is worth being precise about what the country traded away, because
aluminum gave the grid more than a load to grow into. US aluminum
production peaked
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in 1980, with thirty-three smelters producing about 30 percent
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world output, drawing about 8.87 gigawatts
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and employing roughly 26,000 production workers
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about three workers per megawatt of load in a workforce with deep
union density. After 1980, the smelter count fell: to twenty-three by
1990, to nine by 2014, and to just six by 2024, two of them idled. In
2017, the New York Times
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documented the punch line: American companies now smelt aluminum in
Iceland. By 2025, the United States was producing less primary
aluminum than Iceland, a country of fewer than four hundred thousand
people. China now produces
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60 percent of world output, much of it from dozens of mega-smelters,
while Canada, America’s main supplier, produced about 4.6 percent of
global output from its nine primary smelters.

From the roughly 30 percent global share it held in 1980, the United
States now accounts for only about 1 percent of primary aluminum
production. The United States has been a net importer of primary
aluminum every year since 1992, and Canada has long been its largest
foreign supplier, even as Canadian production held roughly steady
while the American industry kept shrinking. The current
administration’s response has been protection rather than
rebuilding, dressed up as a national security necessity: Section 232
tariffs, imposed on aluminum at 10 percent in 2018, lifted for Canada
in 2019, reimposed at 25 percent in March 2025, and doubled to 50
percent that June. Aluminum is covered under the Canada–United
States–Mexico Agreement (CUSMA), and Canada has challenged
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the tariffs through World Trade Organization dispute consultations and
CUSMA procedures. There is something more than a little ironic about
treating import dependence as a security threat after decades of
domestic policy choices hollowed out the industry.

Deregulation Was Never a Growth Strategy

Maybe data centers can fill some of the gap by replacing some of the
electricity demand once represented by aluminum smelting. They
accounted for about 4.4 percent
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of US demand in 2023, and forecasts project that figure roughly
doubling up to 9 percent
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by 2030 as the AI build-out accelerates. That would put data centers
in the same range as aluminum smelting’s wartime peak of about 8
percent of national generation.

In employment and union terms, however, the comparison is not close.
Like other types of physical infrastructure, data centers generate
construction work, but those jobs are temporary. Once operating, large
data centers typically employ about 0.3 to 0.5 permanent workers
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roughly one-tenth to one-sixth of what smelting supported, and the
operational workforce appears almost entirely nonunion
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approximate aluminum’s electrical footprint, but not remotely its
labor or union footprint. The country is being asked to absorb the
load of a heavy industry while getting almost none of the jobs.

Which brings us back to the structure that has to absorb the load.
Restructuring was never a growth strategy, and its architects never
claimed it was. US electricity consumption was essentially flat for
nearly two decades, as efficiency gains and the shift away from
manufacturing offset population and economic growth. It was in that
flat demand environment, not an expansionary one, that restructuring
was designed. Reformers in the 1990s argued that regulated utilities
were saddled with high-cost legacy investments, that new gas-fired
plants had become small and efficient enough to compete, and that
unbundling generation from transmission would let competition, rather
than a monopoly utility’s capital plan, decide what got built. It
was a market built to allocate a flat or shrinking pie among competing
bidders, not to expand a system rapidly enough to serve rising demand.

This matters well beyond data centers. Decarbonization means
electrifying transportation, heating, and industry — decades of
sustained load growth of exactly the kind the American grid once
absorbed while prices fell. Deregulated markets risk turning that into
a choice between growth and affordability. Regulated utilities did
not: both the econometrics and a century of price data show that they
were better able to adapt to growth without levying price penalties on
consumers. Ending the deregulation experiment is not nostalgia.
Regulated power has delivered both growth and affordability
before — and can do so again. The aluminum smelters are not coming
back. But the institutions that built the grid around them should.

_Edgardo Sepulveda is a Canadian economist who was born in Chile._

* AI Data Centers
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* electric power
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* Deregulation
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* consumers
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* electric bills
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