Harrisburg, Pennsylvania– The AI boom is leading to battles in some states over rising utility profits, such as governors, attorneys general and others Protesting against high electricity bills He says cash-strapped residents are stuck in a broken system.
Officials and lawmakers in at least six states — including Arizona, Indiana, Maryland, New Jersey, New York and Pennsylvania — are launching new efforts to try to block interest rate hikes proposed by utilities. Some are pressing utilities to completely change their model for financing major system upgrades.
The push comes during a midterm election year in which affordability is a major topic Democrats’ attempts To ease Republican control of Washington.
Arizona Attorney General Chris Mayes, a Democrat seeking re-election this year, is challenging two utility rate hike requests before the state’s Utility Regulatory Board.
“I felt it was never more important to stand up against the blatant corporate greed of our monopolistic utilities in Arizona,” Mayes said in an interview.
the Voracious energy requirements AI data centers have driven up electricity prices in some areas and sparked a money-making energy sector construction boom.
For many years, consumer advocates have tried to challenge the size of utilities’ investment returns to regulators. But that may not be the case, consumer advocates say.
“We have entered this era of expensive energy and (demand) growth, and we are seeing utility profits at record levels and utility bills rising,” said Matt Kasper of the Energy Policy Institute, which pushes utilities to keep interest rates low and use renewable energy sources.
Utilities have long been viewed as a stable haven for investors, with a reliable source of income and predictable demand. Analysts say that because of the low risk, investment returns in the utilities sector are usually low compared to other sectors.
However, utilities — many of which are owned by for-profit multibillion-dollar parent companies — have seen their stock prices perform particularly well during data center expansion.
The investment returns utilities get from regulators aren’t the only reason consumers have higher bills, but researchers suggest it’s a contributing factor. In March, the Energy and Policy Institute released a report that said profits for 110 for-profit utilities rose from just under $39 billion in 2021 to more than $52 billion in 2024.
Mark Ellis, a former utility executive turned consumer advocate, said about 10% of a typical customer’s bill is what he called “excess profit” for for-profit utilities, higher than what would be considered reasonable under long-standing Supreme Court precedent.
Instead of regulators setting higher returns than the market might demand, utilities should instead shop for the lowest-cost investor money, much as someone might shop for the lowest interest rate on a loan, Ellis said.
Paul Ferraro, a professor of economics at Johns Hopkins University, said that targeting investment returns in public facilities is a political act, not an economic act.
“This is a measure aimed at addressing the deep social disagreements we have about who should benefit from basic infrastructure,” Ferraro said. “But it will not address the main challenges facing the electricity sector.”
This includes investing in modernization, expansion, renewable energies and distributed energy sources, Ferraro said.
Utility executives on earnings calls emphasize efforts to reduce costs or protect residential customers from the cost of providing electricity to data centers, said Travis Miller, an energy and utilities analyst with Morningstar.
“Affordability is probably the number one issue that executives and investors are thinking about right now in the utility sector,” Miller said.
If interest rates aren’t currently affordable, there’s no way utilities can get the rate increases they need to boost earnings and profits for investors, Miller said.
Utilities point to federal data showing that household electric bills as a share of household income have declined in the past two decades. They defend their investment returns from state regulators as necessary to raise the money they need to properly maintain electric grids and ensure reliability for millions of people.
They also warn that investors will simply send their money to utilities in other states that promise higher returns.
Critics describe this as fearmongering.
Earlier this month, the New Jersey Public Utilities Board launched what its chair, Christine Jules Sadovy, called one of the most significant regulatory reviews in a generation, questioning how public utilities should earn revenue in the modern energy system.
In recent weeks, Pennsylvania Governor Josh Shapiro It lobbied PECO, Exelon Corp.’s utility subsidiary in Philadelphia, to pull a 12.5% rate increase, or an extra $20 per month for the average residential customer. Then Shapiro, a Democrat running for re-election this year, issued a letter to utility executives in which he criticized utility profits and said that “the 20th century utility model is broken.”
“We can no longer simply prioritize corporate profitability to drive infrastructure development,” Shapiro wrote.
In a note to investors, one analyst called it the “Quaker State shock,” and the stock prices of companies with facilities in Pennsylvania lagged behind their peers in the following days.
For its part, Exelon – the Chicago-based parent of Commonwealth Edison, PECO, Baltimore Gas & Electric and several other utilities – has emphasized that it recognizes the importance of affordability.
Calvin Butler, Exelon’s president and CEO, told analysts on a first-quarter earnings call on May 6 that it is committed to justifying what it spends and keeping energy bills as low as possible. Butler said her decision to withdraw the rate hike request came after conversations with “stakeholders” who said, “Hey, if you can partner with us to address the affordability issue and take advantage of it, the timing couldn’t be better right now.”
And in Indiana, Republican Gov. Mike Brown has appointed a new slate of utility commissioners on a mission to counter low rate increases.
Their first big test is AES Indiana requesting a 10.1% raise, or $193 million a year, from taxpayers, said Ben Inskeep, program director for the Indianapolis-based consumer advocate Citizens Action Alliance.
As part of that, AES Indiana — whose parent company was taken private in a $33.4 billion deal led by private equity giant BlackRock — sought a 10.7% return on its money.
An 8% yield — instead of 10.7% — would cut the proposed interest rate increase by roughly half, Inskeep said.
And in Arizona, Mayes is challenging a pair of proposed 14% increases, which she said could be reduced significantly if businesses were simply paid to maintain reliable service.
“It has become unbearable for people in Arizona,” Mayes said. “And I think we have to fight.”
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