Rising Costs, Changing Payments: How Utilities Are Rethinking Fee Models

The Shift Toward Smarter Payment Cost Management
in Utilities

Rising operational costs are putting unprecedented pressure on utilities, forcing leaders to rethink how they recover expenses and manage cash flow. From extreme weather and infrastructure upgrades to changing customer payment habits, today’s cost challenges are prompting many utilities to look closely at their payment fee structures and overall payment strategies. As the financial landscape shifts, utilities must find ways to balance operational stability with customer experience, making payment options and associated fees a critical part of the conversation.

Operational expenses continue to rise due to extreme weather events, such as wildfires and hurricanes. At the same time, aging infrastructure, already vulnerable to these conditions, is putting additional strain on utility balance sheets. Add in the growing demand from data centers, and supply pressure is mounting.

Consumers are also a contributing factor, as they increasingly want digital payment experiences and are opting to pay bills with cards more often than before. And while digital payments offer convenience, they also come with higher processing costs, prompting utilities to rethink how they manage them.

Why Utilities Are Rethinking Payment Fee Structures

1. Rising Demand Drives Up Costs

Electricity demand is outpacing supply, especially in certain regions of the United States that host power-hungry data centers supporting AI and cloud computing. As a result, the cost for utilities to secure enough capacity has spiked, resulting in capacity auctions generating record-high prices, with revenue surging by $7.3B (82%) year-over-year.¹ Forecasts expect  U.S. electricity demand to rise by about 25% by 2030,² intensifying the pressure on utilities to manage operating expenses, including payment-related costs. 

2. Aging Infrastructure and Its Impact on Utility Costs

Much of the U.S. utility grid was built in the 1960s and 1970s, and now needs urgent, costly upgrades.³ Nearly 28% of utility spending on local power systems goes toward replacing aging infrastructure, further squeezing budgets and prompting a closer look at all cost centers.

3. Severe Weather and Climate Change

Severe weather and climate volatility are driving up the need for significant grid modernization and repair. For example, wildfire mitigation efforts alone added $27 billion to California utility rates between 2019 and 2023. These escalating costs reinforce the need for utilities to manage every expense.

4. The Increase in Natural Gas Prices

Natural gas, a major source of electricity generation, saw prices rise 45% year-over-year as of October 2025,⁴ with projections indicating further increases amid global tensions. These fluctuations make it harder to forecast expenses and stabilize rates, often forcing utilities to pass those costs on to customers.

What Does the Shift in Customer Payment Behavior Mean?

Customer payment preferences also contribute to rising utility costs. The rapid growth in the use of digital payment options is significant. Credit cards are the most preferred payment method of 50% of customers,⁵ and 70% use them for some or all of their bill payments.⁶ Digital payment methods like credit cards often carry higher fees, which the utility or the customer must absorb.

As digital payments become more popular across all customer segments, other payment methods, like cash or check, are falling out of favor. According to the KUBRA 2023 Utility Consumer Billing and Payment Report, only 13% prefer to use cash for bill payments. Even ACH, also low-cost compared to credit cards, is only preferred by 20% of customers.⁷ 

We live in a convenience-driven economy. Customers expect fast, effortless payment methods that suit their financial needs and preferences. Modern customers value choice in payment options and transparency about associated costs. 

Utilities Are Trying To Strike the Right Balance

As usage grows, card processing costs rise. Historically, utilities have absorbed these costs, but it’s becoming increasingly punitive as fees increase. Recently, utility companies have been reconsidering how they’re handled, moving toward shifting payment processing fees to customers to offset rising operational costs and avoid reducing margins. This shift, often termed "consumer-funded fees," is becoming a strategic cost-management tool.

Utilities are exploring ways to:

• Align costs with payment methods
• Maintain fairness across customer segments
• Preserve optionality and customer choice

The goals are to find the right balance between cost recovery and customer experience, so costs are managed while maintaining customer satisfaction. Utilities are also focused on transparency, ensuring customers clearly understand the costs associated with different payment methods.

Balancing Rising Costs With Customer Choice

As utilities explore consumer-funded fee models, the customer impact can’t be ignored.

From September 2024 to September 2025, average U.S. residential electricity prices rose 7.4%, increasing from 16.8 to 18 cents per kilowatt-hour.⁸ Analysts expect prices to continue rising and outpace inflation into 2026. At the same time, household earnings have remained relatively flat, putting additional pressure on customers already feeling the strain.

This is where flexibility becomes critical. While shifting payment processing costs to customers helps utilities manage rising expenses, service-fee models can also empower customers with choice. By offering a mix of payment options, including no-cost methods like ACH, utilities give customers the ability to manage how they pay and what fees they incur.

In an environment of rising costs, transparency and choice aren’t just nice-to-haves; they’re essential to maintaining trust.

Service Fees, A Closer Look

What Are Service Fees? 

Service fees are payer-funded fees added to a transaction to reflect the cost of processing a specific payment method. Rather than being absorbed by the utility, these fees are tied directly to how a customer chooses to pay.

They can be structured as either a flat fee or a percentage of the transaction amount and may vary depending on the payment method, such as credit, debit, or ACH. Service fees may apply to one-time payments, recurring billing, or AutoPay.

As utilities face mounting cost pressures, service fees are becoming part of a broader industry shift toward greater transparency and pricing models that more accurately reflect real processing costs while still preserving customer choice.

What Service Fees Mean for Utilities?

Service fees give utilities more control over how payment costs are managed without removing customer flexibility.

They allow utilities to:

• Align costs with payment methods by passing through higher processing fees where they occur
• Build more sustainable cost models as digital payment usage continues to rise
• Encourage lower-cost options like ACH, without eliminating higher-cost methods like cards
• Maintain customer choice and optionality, rather than forcing a one-size-fits-all approach
• Improve transparency, so customers understand the cost implications of how they pay

Just as importantly, service fees influence behavior. When customers are given clear choices and visibility into costs, they’re more likely to shift toward more cost-effective payment methods over time without feeling restricted.

Sources:

1. Data centers primary reason for high PJM capacity prices: market monitor, Utility Dive, 2025.
2.  Fast forward, Electricity demand expected to grow 25% by 2030, ICF.
3.  U.S. Department of Energy.
4.  Short-Term Energy Outlook, U.S. Energy Information Administration, 2026.
5.  KUBRA 2023 Utility Consumer Billing and Payment Report.
6.  KUBRA 2025 Credit Card Usage for Bill Payments Research.
7.  KUBRA 2023 Utility Consumer Billing and Payment Report.
8.  U.S. Energy Information Administration, 2026.