"Rising Electricity Costs" Become a Focus of the U.S. Midterm Elections, AI Data Centers Stand on the "Political Volcanic Crater"

The surge in electricity costs is becoming a central issue in the U.S. political agenda, with increases surpassing other types of inflation and pushing utility bills to the forefront of political discourse ahead of the midterm elections. Data centers, due to their massive electricity consumption, have become a focal point, with politicians from both parties intervening in the debate over rising electricity prices, leveraging it as a voter pain point.

According to a report by The Wall Street Journal on Saturday, the Trump administration convened officials including governors from Pennsylvania, Ohio, and Virginia last Friday at the White House to push for emergency electricity auctions by the largest U.S. grid operators. The government is requiring large tech companies to either supply their own electricity or bear the costs of building new power plants to alleviate concerns that their data centers are driving up electricity prices for ordinary Americans. Trump praised Microsoft's commitment to pay higher electricity rates for all its U.S. data centers on social media, stating it "ensures Americans won't 'foot the bill' for their electricity consumption."

U.S. electricity costs rose 6.7% year-over-year last December, accumulating an increase of about 38% since 2020, while overall consumer prices rose only 2.7% during the same period. This gap has made electricity pricing a key issue in this year's gubernatorial races in 36 states and could impact utility commission election outcomes in nine states.

In light of this political risk, Goldman Sachs has advised investors to hedge against the risks of "politicization of artificial intelligence." The bank's trading department noted that as the midterm elections approach, policymakers' public concerns about data center energy consumption are rising, and AI infrastructure may become the next target of unexpected impacts from new government policies.

Electricity Price Increases Far Exceed Overall Inflation, Politicians Seize Voter Pain Points

The reasons for rising electricity costs are diverse and complex. Research led by the Lawrence Berkeley National Laboratory indicates that factors such as aging equipment replacement, rebuilding after storms and fires, and state renewable energy programs are driving up electricity prices. Fluctuations in fuel costs, such as natural gas, can also raise or lower bills.

Political pressure is spreading across states. Indiana Republican Governor Mike Braun stated last September, "We can no longer tolerate this," directing state consumer advocates to assess utility company profits. Maine Democratic Governor Janet Mills called a request for a rate increase "out of touch" and encouraged the state utility regulatory agency to reject the proposal, which the agency adopted last November.

Republican Senator Josh Hawley wrote to a utility company CEO last October, stating, "Families across Missouri are struggling to pay their bills." His concerns included rising electricity prices and ensuring that residential customers do not bear the costs of new data centers that consume large amounts of electricity.

Energy supplier Ameren Missouri responded that its residential electricity rates are among the lowest in the nation but understands Hawley's concerns, stating, "Rising household costs are a real challenge." A new law in Missouri attempts to ensure that large customers bear the costs they impose on the grid.

Data Centers Become the "Scapegoat" for Rising Electricity Prices

Data centers are bearing much of the blame for soaring electricity costs. The issue of cost allocation has become a core controversy. Charles Hua, executive director of the nonprofit PowerLines, raised a key question: "Which costs should be borne by residential consumers like you and me, and which costs should be borne by large commercial customers like tech companies or large industrial customers like manufacturing plants?" "

Trump has incorporated these concerns into a series of cost-of-living proposals he has recently promoted. He praised Microsoft's commitment to pay higher electricity rates for all its U.S. data centers powering artificial intelligence models, "ensuring that Americans do not 'foot the bill' for their electricity consumption."

According to The Wall Street Journal, some states in the Northeast and Mid-Atlantic have seen cumulative bill inflation of 29% over the past three years (20 percentage points higher than CPI). This is the result of multiple factors: electrification, data centers, and the return of manufacturing leading to a demand inflection point, the retirement of coal units tightening regional power markets, pushing up capacity prices passed on to customers; fluctuations in natural gas prices in certain areas and limited domestic natural gas supply; increased public utility costs supporting state and federal energy efficiency, wildfire mitigation, and clean energy goals; and higher delivery costs due to utility companies investing in aging grid infrastructure. In states with lower inflation, ample local resources (coal/wind/natural gas) have helped maintain lower electricity prices and sufficient supply.

Midterm Elections Push Electricity Prices to the Political Forefront

For utility companies, 2026 seems to be a challenging time to apply for electricity rate increases. John Bartlett, president of Reaves Asset Management, which invests in the industry, stated that he expects electricity costs to become a focal point in this year's gubernatorial races across 36 states, although he noted that governors do not control all factors affecting electricity prices, including a key input: natural gas costs.

Most state utility commissions are appointed, but among the 10 elected commissions, 9 have elections this year. Hua expects fierce competition in Arizona, Louisiana, and Georgia this year. Affordability and data centers are issues in all three states, and Georgia voters ousted two incumbent commissioners last November.

Ed Hirs, an energy economist at the University of Houston, stated, "The general rule is that if gasoline prices at the pump or electricity prices on the meter rise, incumbents do not get re-elected. This applies to any incumbent, whether Democrat or Republican." However, Hirs pointed out that many factors driving electricity price increases have been brewing for years, especially in competitive electricity markets, where he believes generators lack sufficient financial incentives to invest enough capital in plant maintenance or new construction, but new generation capacity is now needed.

Goldman Sachs Suggests Hedging Against "AI Politicization" Risks

Goldman Sachs' trading department has been responding to client inquiries about the spillover from AI to other parts of the stock market. The bank highlighted three main concerns: companies have invested significant cash flows into data center infrastructure, with growing worries about expected investment returns; whether the measurement of data center capacity demand is accurate and if there is an oversupply; and the potential for midterm elections to introduce regulatory controls on data center siting and utility bill inflation.

Goldman Sachs' trading department does not believe the first two issues will drive a sell-off in the AI sector in 2026. The bank's report indicates that its earnings and valuation analysis shows that AI pricing across all categories is reasonable and not comparable to historical bubbles (the dot-com bubble/global financial crisis). The Mag5 companies, excluding Google, have underperformed, but earnings growth remains healthy However, Goldman Sachs does expect the midterm elections to focus on this topic. Several U.S. policymakers have publicly expressed concerns about the energy consumption of data centers. Massachusetts Senator Edward J. Markey sent a letter to the Federal Energy Regulatory Commission (FERC) last November, urging it to prevent the growth of data centers from "significantly driving up energy costs for American households," pointing out that data centers are driving an increase in electricity demand, which could burden households through higher utility bills. The letter was co-signed by six other senators. Florida Governor DeSantis has supported state law amendments in 2024, emphasizing cost and reliability as key Florida energy goals, and has criticized data centers and artificial intelligence for driving energy usage throughout his summer speeches.

Goldman Sachs' equity research team explained that inflation in utility bills for residents in certain areas has accelerated, raising concerns about affordability for customers. Has the Trump administration's policies impacted unexpected areas of the stock market, and will AI be next? The best-performing themes in the stock market have been dominated by AI infrastructure leaders.

Goldman Sachs has proposed three preferred trading strategies: going long on companies outside of technology and AI that improve productivity through the implementation of AI (AI Productivity Basket GSXUPROD); going long on the Mag5 excluding Google (GSCBM5XG); and going long on AI volatility (GSVIAIV1) to hedge against the risk of "AI politicization" as the midterm elections approach. The bank's preferred hedging implementation method is to go long on AI volatility