On Aug. 20, 2026, the Tennessee Valley Authority Board of Directors will meet in Memphis and is widely expected to adopt a new rate class specific to data centers. This change aligns with the White House’s Ratepayer Protection Pledge that TVA signed in July to ensure data centers pay for the infrastructure built to serve them.
A recent investigation by ThinkTennessee highlights some of the risks associated with growing energy demand from data centers. The report found that communities “hosting data centers saw electricity bills rise 1.6%, on average, between 2023 and 2024, compared to the statewide average of 1.3%.”
Importantly, they also noted that “residential customers absorbed
a 3.2% increase” while commercial customers saw 0.2% reductions in bills. The proposed rate change could help distribute costs to update the grid. It may not be enough to address the fact that ordinary households in Tennessee are already struggling to pay their energy bills. TVA, the federally-owned utility, and local power companies have other options to address affordability: reduce energy usage through energy efficiency and implement energy affordability programs.
Opportunities for energy efficiency
Rates in the TVA region are among the lowest in the country. However, Tennesseans on average use more energy. Tennessee has the fifth highest average residential electricity usage, surpassed only by Louisiana, Alabama, Mississippi and North Dakota. This is due in part to the high share of electric heat, as well as hot summers and cold winters which mean we need electricity year-round. It also means there are enormous opportunities to improve efficiency to lower residential bills.
The National Lab of the Rockies estimates that cost-effective energy efficiency improvements such as replacing worn-out electric furnaces with high-efficiency heat pumps, insulation and duct sealing, and smart thermostats could save up to 26% of the energy used in single-family homes in Tennessee. Energy efficiency, coupled with storage and demand response, can increase flexibility, help address constraints on the grid and limit the need to build expensive new power plants.
Energy affordability programs
The other option to reduce household energy bills is to change the rates charged for energy. Electric rates are designed to allow utilities to recover costs incurred in building power plants, maintaining the aging grid, and repairing damage from severe weather, among other infrastructure investments. Residential, industrial and commercial customers are charged distinct rates based on the cost to serve them. Even before data center demand spiked, the costs for utilities were growing. In Tennessee, rates have risen nearly 10% since 2023.
States and utilities across the country are looking at ways to change how costs are distributed to bring bills in line with customers' ability to pay, including through tiered discounts for income-qualified customers and percentage-of-income payment programs.
Among the oldest such programs is in Ohio. Since 1983, the percentage-of-income payment plan has capped household electricity and gas bills at a share of household income (now 10%) for eligible customers of participating utilities.
This program is matched with debt forgiveness so that each time customers pay their bill on time, a portion of any debt they have accrued is forgiven. Virginia, which has an estimated 583 data centers compared to 65 in Tennessee, has one of the most recent percentage-of-income payment programs. In total, 12 states have percentage-of-income payment plan programs in place or are currently piloting these programs, and 26 states have some kind of affordability measure to support the most cost-burdened households. Affordability programs that can lower costs for some will raise costs for others. In some recent cases, large load tariffs, like those paid by data centers, are used to support affordability programs.
Energy insecurity is growing
In a survey conducted by the US Energy Information Administration, 35% of households across the South reported some kind of energy insecurity such as cutting back on food or medicine to pay utility bills, keeping a home at unhealthy temperatures, receiving a disconnection notice or not having functional heating or air conditioning equipment.
In 2016, the American Council for an Energy Efficient Economy found that Memphis had the highest energy burden – the share of income spent on energy – of any city in the United States. Low-income households paid 13.2% of their income toward utilities. Under a percentage-of-income payment plan, a portion of these costs could be capped so that fixed-income seniors, students, working parents and others would only pay a portion of their bill that is affordable.
In a percentage-of-income payment program pilot in Knoxville, participants reported that lower utility bills relieved stress and allowed them to catch up on other necessary household expenses, putting any money saved back into local economies.
Action to address affordability can protect Tennesseans as the grid changes
As TVA and local power companies work together to address rising demand from data centers, energy efficiency and energy affordability programs can also help address the pinch in customers’ pockets.
Nikki Luke is an associate professor in the Department of Geography and Sustainability and a fellow at the Center for Energy, Transportation and Environmental Policy at the University of Tennessee.
This article originally appeared on Nashville Tennessean: TN households need energy affordability as data centers grow | Opinion
