More Americans are blaming the AI infrastructure expansion for
rising electricity bills. Our Head of Public Policy Research
Ariana Salvatore explains how the topic may influence policy
announcements ahead of the midterm elections.
Read more insights from Morgan Stanley.
----- Transcript -----
Ariana Salvatore: Welcome to Thoughts on
the Market. I'm Ariana Salvatore, Head of Public Policy Research
for Morgan Stanley.
Today I'll be talking about the relationship between
affordability, the data center buildout, and the midterm
elections.
It's Wednesday, February 18th at 10am in New York.
Markets and voters continue to grapple with questions on AI,
including its potential scope, impact, and disruption across
industries. That's been a clear theme on the policy side as
voters seem to be pushing back against AI development and data
center buildout in particular. In key states, voters are
associating the rise in electricity bills with AI infrastructure
– and we think that could be an important read across for the
midterm elections in November.
Now to be sure, electricity inflation has stayed sticky at around
four to 5 percent year-over- year, and our economists expect it
to remain in that range through this year and next. Nationally
the impact of data centers on electricity prices has been
relatively modest so far, but regionally, the pressure has been
more visible.
To that point, a recent survey in Pennsylvania found that nearly
twice as many respondents believe AI will hurt the economy as it
will help. More than half – 55 percent – think AI is likely to
take away jobs in their own industry, and 71 percent said they're
concerned about how much electricity data centers consume. But
this isn't just a Pennsylvania story. In other battleground
states like Arizona and Michigan, voters have actually rejected
plans to build new data centers locally.
So, what could that mean for the midterm elections? Think back to
the off-cycle elections in November of last year. Candidates who
ran on this theme of affordability and actually pushed back
against data center construction tended to do pretty well in
their respective races. Looking ahead to the midterm elections
later this year, we see two clear takeaways from a policy
perspective.
First, it's important to note that more of the policy action here
will actually continue to be at the local rather than federal
level. Some states with heavy data center build out – so Georgia,
Michigan, Ohio, and Texas among others – are now debating who
should pay for grid upgrades.
Federal proposals on this topic are still pretty nascent and
fragmented. Meanwhile, public utility commissions in states like
Georgia, Ohio, Michigan, and Indiana have adopted or proposed
large load tariffs. These require data centers to shoulder more
upfront grid costs; or can reflect conditional charges like
long-term contracts, minimum demand charges, exit fees or
collateral requirements – all of which are designed to prevent
costs from spilling over to households.
And secondly, because of that limited federal action, we expect
the Trump administration to continue leaning on other levers of
affordability policy, where the president actually does have some
more unilateral control. We've been expecting the administration
to continue focusing on broader affordability areas ranging from
housing to trade policy, as we've said on this podcast in the
past.
That dynamic is especially relevant this week as the Supreme
Court could rule as soon as Friday on whether or not the
president has the authority under IEEPA to impose the broad-based
reciprocal tariffs. The administration thus far has been
projecting a message of continuity. But we've noted that a
decision that constrains that authority could give the president
an opportunity to pursue a lighter touch tariff policy in
response to the public's concerns around affordability.
That's why we think the AI infrastructure buildout debate will
continue to be a flashpoint into November, especially in the
context of rising data center demand. Next week, when the
president delivers his State of the Union address, we expect to
hear plenty about not just affordability, but also AI leadership
and competitiveness. But an equally important message will be
around the administration's potential policy options to address
its associated costs.
That tension between AI supremacy and rising everyday costs for
voters will be critical in shaping the electoral landscape into
November.
Thanks for listening. As a reminder, if you enjoy Thoughts on the
Market, please take a moment to rate and review us wherever you
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