BIRMINGHAM, Ala. — Alabama Power is freezing customer rates while state regulators prepare to require the largest data centers to cover the added costs of serving their enormous electricity demand, a policy meant to prevent AI-driven development from shifting new power-system expenses onto households.
The utility has said its customer rates are frozen through 2027, with Gov. Kay Ivey extending the freeze through 2028. At the same time, Alabama Power says large-load customers, including data centers, must pay the full cost of serving their electricity needs, including dedicated facilities, delivery upgrades and customer-specific generating capacity.
The policy comes as Alabama pursues a rapidly growing data-center industry and residents question who will ultimately pay for the power plants, transmission lines and substations needed to serve facilities that can operate around the clock.
A new state law, Senate Bill 270, requires the Alabama Public Service Commission to determine whether certain utility contracts with large-load data centers are in the public interest. The law takes effect Oct. 1.
Under the law, a contract can meet that standard if it is expected to recover from the data-center customer the “incremental costs” of electric service and promote positive benefits for the utility’s other retail customers. The statute defines incremental costs as expenses for generation, transmission, distribution, fuel and taxes that the utility would not have incurred without the data-center contract.
The legislation applies to qualifying data centers requiring at least 150 megawatts of electricity at a single site. The commission opened a proceeding this summer to consider how it should review those agreements.
Alabama Power has said it already follows that principle.
“Alabama Power requires large-load customers, including data centers, to pay the full cost to serve their electric needs, so costs are not shifted to existing customers,” the company said in a statement reported by Alabama Daily News.
The question for customers is whether those protections can be independently verified. Alabama Power filed a contract for a planned 300-megawatt Birmingham data center with the PSC, but the publicly released version redacted key terms, including pricing, project capacity, financial-security requirements, minimum bills and the length of the agreement.
The redactions mean the public cannot independently determine whether the contract’s payments will fully cover the utility’s costs or protect other customers if a project is delayed, downsized or abandoned.
Consumer and environmental advocates say the PSC’s implementation of the new law will determine whether it becomes a meaningful safeguard. Daniel Tait, executive director of Energy Alabama, told Inside Climate News that the degree of customer protection depends on how the commission enforces the statute. Southern Environmental Law Center attorney Jaclyn Brass said the state should adopt a more transparent process and a publicly reviewed rate specifically for data centers.
The freeze itself does not eliminate all future cost pressures. As part of the agreement to freeze rates, Alabama Power delayed a charge associated with a $622 million natural-gas plant it acquired in 2025 to help meet expected demand, including demand associated with data-center growth. The charge is expected to begin in 2028 and would add an estimated $3.32 a month to the average customer bill, according to Inside Climate News.
Alabama households already face among the country’s highest average monthly electric bills, though the distinction between bills and rates is important. EIA-based 2024 figures put Alabama’s average residential bill at $173.50, the third-highest among states, while the average residential rate was 15.18 cents per kilowatt-hour — below the national average of 16.48 cents. Alabama homes used an average of 1,143 kilowatt-hours monthly, compared with 863 kilowatt-hours nationally.
That means Alabama’s high bills are driven substantially by higher electricity use — including air conditioning needs in a hot, humid climate — rather than by having the nation’s highest price per kilowatt-hour. Hawaii, not Alabama, had the highest average residential bill in the 2024 EIA-based comparison.
The stakes are rising as developers seek sites across the state. An Inside Climate News review identified at least a dozen proposed data-center developments that, if built at full capacity, could use more electricity than all Alabama homes combined. The projects include proposed hyperscale campuses in the Birmingham region and the Black Belt.
For now, Alabama Power’s message is that residential rates are frozen and data centers will bear their own added costs. Whether that promise holds will depend on the PSC’s contract reviews, the terms that remain confidential and the costs that emerge after the rate freeze expires.