Companies are using AI to put the squeeze on California families—but it doesn’t have to be this way

Today, working families feel the squeeze everywhere—from rent and utility costs to groceries. In each instance, the tech sector is a behind-the-scenes player in driving up the cost of these goods. 

Utility rates are creeping higher because of how AI saps energy supply. Corporate actors from Delta Airlines to Kroger grocery stores are using pricing technology to use personal data to charge higher prices and to coordinate with each other to constrain consumer choices. Landlords are using rent-setting technologies to coordinate higher rents while skirting and undermining traditional anti-collusion laws.

The existing guardrails against corporate overreach have not held, and California’s working families are literally paying the price. But it doesn’t have to be this way.

We identified AI’s role in California’s affordability crisis, as well as solutions to increase competition and drive down costs, stop AI companies from passing energy costs on to households, and give regular people control over their data. 

What’s at stake?

Far from its initial promise of connecting more people and democratizing information, the technology industry is increasingly fueling its growth by exploiting every opportunity to squeeze more out of Californians. 

Algorithmic price fixing is helping landlords drive up housing costs: California has the second-lowest homeownership rate and the second-highest rate of housing cost burden (renters spending more than 30% of their income on rent). Now, landlords are turning to AI-powered price-setting technology to stack the deck even further. Research shows that landlords who use this technology added $3.8 billion in costs for renters in 2023 alone. In California, pricing coordination added $110 a month to market rent for Riverside renters, $99 in San Diego, $62 in San Francisco, and $24 in Los Angeles. 

AI data centers sap the utility grid as rates increase for consumers: A recent Bloomberg News analysis found that, across the US, utility bills increased 267% over 5 years in areas near data centers, and California is already experiencing similar data center-fueled rate hikes. With data center electricity demand projected to double or triple over the next three years, some California cities face the same pricing pressures that drove utility costs up by as much as 267% in other data center hubs.

AI-enabled data surveillance raises our prices and threatens privacy, autonomy, and economic stability: Companies are using a host of factors about individuals—demographics, location, purchase history—alongside algorithms to calculate individualized prices designed to make each customer pay the highest price they’re willing to pay.  For instance, pricing algorithms showed Bay Area residents hotel rates $500 higher than those shown to people from Phoenix or Kansas City looking at the exact same room and dates. 

How California can lead

The current guardrails that could keep AI tools from raising prices and protect against concentrated economic power are inadequate. To ensure competition, fair markets, and consumer choice, ultimately making the state an affordable place to live, California’s leaders must take bold action.

Drive competition to strengthen the economy

Consumer prices are creeping up in part because big businesses are working together, with a major assist from AI, to exploit their customers. Less real competition means less incentive to keep prices low and wages high. California leadership can address this by doing four things:

• Modernize our laws to outlaw companies from engaging in anti-competitive behavior, such as erecting roadblocks for competitors or swallowing up start-ups so that they can’t grow to compete with Big Tech.
• Expand on the Preventing Algorithmic Price Fixing Act (AB 325) to strengthen enforcement of laws around pricing exploitation.
• Implement structural solutions that promote competition and innovation, like requiring data portability so consumers are not locked into dominant platforms.
• Invest in CalCompute and public AI infrastructure to provide affordable AI compute resources for small businesses, the public sector, researchers, and startups.

Stop AI from passing energy costs onto households

Across the country, the buildout of data centers and associated energy infrastructure has driven up energy bills for households and small businesses. Despite committing to pay their fair share, the industry has fought prohibitions on passing its costs along to ratepayers. 

To prevent ratepayers from shouldering the cost burden for the AI data center buildout. California must:

• Establish strong protections to safeguard households and small businesses from absorbing any stranded costs of building data center infrastructure, and require that data centers pre-pay or frontload 100% of the costs to serve them (including transmission, generation, and capacity).
• Ensure the costs of data center expansion are not borne by taxpayers by prohibiting the use of tax incentives—similar to Illinois.
• Mandate public disclosure of energy consumption, water use, and emissions data, and ensure that data centers fund independent cost studies. 

California leadership should also consider implementing some of the policies included in AI Now Institute’s North Star Data Center Policy Toolkit.

Modernize transparency and discrimination protections for the age of Big Data 

AI companies have not been transparent about the data underpinning so much of how AI works or the prices Californians pay, making it hard to hold bad actors accountable. In 2018, California led the way by enacting the California Consumer Privacy Act (CCPA), but efforts by the tech industry and its business partners have intentionally slowed its implementation and effectiveness. 

To ensure Big Tech can’t continue to develop AI without transparency and accountability, public officials must modernize existing protections for how information flows today. These are some ways they could do that:

• Extend existing anti-discrimination protections to cover AI-driven decisions in housing, employment, lending, and insurance by requiring that individuals have some legal recourse, such as notice and the right to an explanation, the right to correct, and the right to alternative human review. 
• Strengthen enforcement and programs under CalPrivacy, such as California’s new Automated Decision-Making Technology regulations, and invest in programs like the DROP data deletion tool to ensure proactive enforcement of existing data rights. 
• Build up individual rights to control the flow of personal data and how that information is then used. 
• Remedy the information asymmetries that allow privately held data to be weaponized against consumers by, for instance, creating a public repository of rents and ownership data that would allow regulators and the public to see the same information that landlords can see about how prices are moving.

Building a California for all

70% of Californians think we need strong laws to regulate AI. They don’t trust companies to do it themselves—nearly 80% of voters across partisan lines say they have little or no faith that tech leaders will act in the best interest of the people of California.

Why would they? Californians can see that, in the current economy, Silicon Valley and business executives profit while everyday households struggle. 

Working households need a fair shot that includes prices based on actual market competition, ratepayer protections for utilities, civil rights shields against algorithmic discrimination, and, most importantly, courageous leaders invested in holding corporations accountable and making the state work for the many, not just the few.

That’s why we, in partnership with Economic Security California, authored “AI & Affordability in California: Land of Opportunity or Hardship?“—a memo outlining ways California leaders can take the reins to steer us toward a more equitable economy as we move into the age of AI. This memo is part of TechEquity’s California’s AI Future series, which includes three other memos addressing the political dynamics of AI in California, the impact of AI on labor, and an alternative vision for California’s tech economy.

Have a personal experience with AI and the economy? When you share your story, California leaders have more information and are more emboldened to stand up for everyday Californians.