Lake Tahoe Power Crunch Shows AI’s Growing Energy Toll in West

(Bloomberg) -- Lake Tahoe has long been a refuge for Silicon Valley’s tech elite, from Mark Zuckerberg to Larry Ellison. Now the artificial intelligence boom behind much of that wealth is straining the region’s power market, pushing up costs for residents in the lakeside towns below.

Energy-hungry data centers across the border in Nevada are adding pressure to the market serving roughly 50,000 electricity customers on the California side of the lake. By the local utility’s own sample-bill calculation, the cost of keeping the lights on at home has surged about 77% since late 2022 — approaching twice the national residential average.

The squeeze could get worse next year, when Liberty Utilities, the region’s main electric provider, is expected to lose its primary power supplier, Berkshire Hathaway Inc.’s NV Energy. The Nevada utility says the change was long planned, though it comes as data center development accelerates and competition for power intensifies.

Still, what’s happening in Tahoe reflects a broader tension emerging across the country, as Big Tech and its investors pour billions into AI infrastructure, betting it will remake much of the economy. Across many communities, households and small businesses are seeing the costs more clearly than the benefits — from anxiety over jobs to higher power bills tied to the energy needed to run the technology.

“Already, for my little sandwich shop, there’s times when it is over $1,500 a month,” said Sean Mullin, owner of the Yellow Submarine shop in South Lake Tahoe. “If it goes up again, we’ll probably have to raise prices again and it’ll definitely hurt our bottom line.”

NV Energy says data centers are not why Liberty is losing its supplier. The arrangement dates to Liberty’s 2011 purchase of NV Energy’s California assets, when the companies set up a temporary power-supply deal that was always intended to wind down, spokesperson Katie Jo Collier said. She said large new customers, including data centers, must pay for infrastructure needed to connect them to the grid.

Alphabet Inc., Microsoft Corp., Amazon.com Inc. and Meta Platforms Inc. are on track to spend as much as $725 billion this year, much of it tied to AI data-center equipment.

Nevada is one of the fastest-growing markets for data centers, helped by tax breaks and access to western power markets, according to the Desert Research Institute. The facilities require always-on electricity, and NV Energy, which serves about 90% of the state, has said proposed projects could require roughly three times the energy now used in the Las Vegas area.

Customers have approached NV Energy for more than 22,000 megawatts of potential load, with about 6,000 megawatts already under agreement. That committed amount is more than 40 times Liberty’s peak demand in Tahoe, showing how quickly data centers can overwhelm smaller communities.

For Liberty customers, the timing has made the long-planned transition far more consequential. The utility must replace most of its power by May 2027 in a market that it has described as “extremely competitive.”

To be sure, AI is not the only force pushing up electricity bills. California utilities have been spending heavily on wildfire mitigation, grid hardening and other system costs, and Liberty says the high-fire-risk Tahoe region requires ongoing investments to reduce the risk of utility-sparked blazes.

Liberty will still use NV Energy’s transmission system to move electricity into the Tahoe Basin. But it needs another supplier, either from within NV Energy’s system or elsewhere in the west. That search is complicated by geography, because Liberty is not part of California’s main power grid and has only limited ties to other electrical systems, leaving it dependent on transmission through Nevada.

For local businesses, the pressure is immediate. Darin Pepin, who runs Pep’s Place, a takeout café on Tahoe’s North Shore, has watched his Liberty electric bills nearly triple, even after cutting hours and removing power-hungry appliances. The rising costs have forced him to raise prices four times in the past three years, and he expects to do so again before the summer tourist rush. He worries the increases will start to push away his core customers.

“There could easily become a point where the locals get priced out,” Pepin said.

Sam Kozel, an energy consultant at E9 Insight and a Liberty customer in Tahoe, moved to the region in 2020. Since then, he said, his electricity rate has more than doubled. “It’s a huge jump in a short period of time,” Kozel said.

That imbalance is fueling concern that data centers are not just adding demand, but helping set the price smaller communities must pay for power.

“How much are we going to allow the rise of data centers in a power-constrained environment to drive pricing?” said Steve Frisch, president of the Sierra Business Council, warning that more communities across the country could soon face the same pressures.

Liberty, owned by Canada-based Algonquin Power & Utilities Corp., has asked California regulators to fast-track its search for a new supplier. It expects proposals this summer and is prioritizing “customer affordability and renewable options,” spokesperson Alison Vai said in an email.

The compressed timeline leaves Liberty seeking supply while larger, less price-sensitive buyers are also in the market. If it fails to secure a supplier before the current agreement expires, it would still have to keep the lights on, potentially through month-to-month arrangements, according to South Lake Tahoe Mayor Cody Bass.

For residents already grappling with Tahoe’s high cost of living, the uncertainty is fueling alarm. An influx of wealth has transformed the region’s housing market, pushing prices beyond the reach of many local workers, while higher utility costs threaten to add another burden.

“Further increases in electricity costs will drive out more families and hurt businesses as well,” City Councilman Scott Robbins said.

The fast-moving process has stirred concern among residents and advocacy groups, who say the search for a new supplier could sideline public input. South Lake Tahoe has urged regulators to require more transparency, while some residents are pushing for a community-choice program or even a municipal utility.

For Tahoe, the issue is not whether electricity will be available, but how much it will cost as the AI boom reshapes power markets.

“We have to use this crisis as an opportunity to actually improve the system, rather than just plug the hole,” Frisch said.

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