Governor Hochul’s Take on AI and Power Costs

Governor Cathy Hochul has warned about the impending surge in artificial intelligence, suggesting that it will lead to the creation of “massive data centres” which will deplete power resources faster than our grid can handle. This, she claims, could also contribute to rising home prices.

If that sounds familiar, it’s because Hochul seems to be using a similar narrative to last year when she pinned the housing crisis on “institutional investors.” However, it’s worth noting that only a fraction of single-family homes are owned by large companies, and she hasn’t really provided any solid evidence connecting these corporations to home price trends in New York.

Her administration did share a PowerPoint slide regarding “affordability,” but now it feels like the focus on data centers has turned them into a convenient scapegoat.

The issue is that all this media coverage framing data centers as the primary culprits takes attention away from the more complicated—and solvable—problems causing skyrocketing electricity costs in the state.

Since 2019, New Yorkers have seen household electricity rates soar.

Interest rates have jumped over 30% since mid-2021, partly due to the disruptions from the coronavirus pandemic.

In recent times, electricity has been rising at about 8% annually, which is notably higher than inflation’s rate.

There are multiple factors, including environmental regulations, renewable energy mandates, taxes, and climate policies that are pushing these electricity costs higher. Yet, Hochul’s mention of “massive data centers” doesn’t quite fit as the main issue here.

For comparison, if data centers were truly to blame, one would expect Virginia, where many of these centers are booming, to be experiencing even higher electricity rates than the national averages—a scenario not playing out.

Underneath the governor’s sensational rhetoric, there are some truths that she plans to address in her upcoming State of the State speech. Navigating New York’s electricity market won’t be straightforward. New large customers, whether they are data centers or manufacturing plants, are emerging as states frequently block new power plant constructions needed to meet rising demand.

This resistance to growth has undoubtedly contributed to recent price hikes. The national focus should be on the broader implications of these dynamics.

When the price of essentials like housing or electricity goes up, businesses tend to flood the market trying to profit from these higher rates.

However, New York City has historically not embraced large-scale power generation projects, including renewable sources and fossil fuel options. Hochul has shown limited support for nuclear energy generation, but the timeline for developing such plants is considerably longer than that of the proposed data centers.

Currently, restrictions on local energy generation and barriers to electricity imports are already presenting challenges for New York City.

Interestingly, in past decades, rising electricity demand was often seen as a positive sign, linked to improved living standards and economic expansion.

Take the memory chip producer Micron, which the governor praised—this company is set to become New York’s largest recipient of corporate incentives and is also a significant electricity consumer, potentially surpassing the usage of entire states once they establish a facility near Syracuse.

AI-driven data centers are shifting the conversation, as their local economic impact may not be as significant compared to traditional industries such as automotive or food processing.

The complexity of regulatory oversight is also increasing. While the federal government governs the wholesale electricity market, states manage the local electricity providers.

When significant energy users in one state operate under its specific regulations, it can lead to market discrepancies in neighboring regions.

If Hochul genuinely has concerns regarding data centers, perhaps she should first assess how much government support these facilities receive.

For instance, there have been delays in addressing rural municipalities that started cryptocurrency operations, benefiting from discounted electricity from hydroelectric sources.

Typically, local governments offer tax incentives meant for factories to data centers, which create fewer jobs.

Let’s not overlook that New York is entering the power-intensive realm of artificial intelligence via its state-funded Empire AI initiative.

Yet, despite the evident challenges of high electricity prices and housing shortages, sincere scrutiny of power utilities, development incentives, or state investments often falls prey to the oversimplifications amplified through social media.

Hochul, alongside New York’s political scene, appears eager to sidestep accountability as long as she can redirect blame to an external “them.”