Mexico City Our utility bills are going up everywhere in the United States. We all have our theories, and some of them are right, at least partially. Is it pressure from data centers for more power as tech companies race forward in the competition over artificial intelligence? Yes. Is it subservient regulators and an antiquated rate setting system allowing investor-owned utilities a guaranteed rate of return, often self-certified by the companies? Yes. Is it because IOU’s are spending so many billions updating and hardening the electric grid? Probably not, because the rate structure incentivizes new plant construction instead and private sector utilities are more about their dividends and stock prices. There’s a lot going on, and at the bottom line, whether we understand the “why” of rising prices for electricity, there’s no question that we’re paying. An article in Harper’s was very helpful in getting an understanding of this dilemma.
Some things are clear. They are making huge profits now. “A recent study published by the American Economic Liberties Project (AELP) estimates that the utility sector takes in $50 billion each year in excess profit, about $300 per US household.” They accomplished this by being able to successfully game the regulatory system. “From 2021 to 2024, utilities set successive yearly records for rate-increase requests. Rate hikes in 2023 were about nine times what the sector asked for in 2000.” This is not a level playing field for consumers. The companies can charge ratepayers for the costs of an army of lawyers, expert witnesses, and financial people, while consumers, including state advocates, have no access to such resources.
At the heart of the problem driving the increases is a ratio set by regulators on return on equity (ROE) which is what they are able to collect from consumers to pay off shareholders’ capital for the utilities investments. Without making this too complicated, the companies want the highest ROE they can get, because they can milk profits from it, even if some of their investments are incentivized by the system, not consumer need, or commitment to lower rates. “While the average equity-return forecast for Wall Street’s biggest money managers is approximately 6.7%, the average ROE for US electric utilities is 9.6%.” In George and Florida, they are often higher at around 12%.” One expert who has studied ROE “estimates that utility stocks…are worth an extra $1 trillion owing to the extravagant rates companies are allowed to charge consumers.”
Some states, like California and Connecticut, have taken steps to limited ROE, but they are small streams in an ocean. Other states are bending over backwards to allow utilities and tech companies to fleece their consumers. Louisiana under Governor Landry has expedited company rate requests to encourage data center construction, allowing companies to avoid even the hearings on the matter. Arkansas may be the worst on this score:
…a recent law, backed by regional utilities, that would fund additional electricity dedicated to data centers could raise customer rates as much as 20%. The legislation …supported by …Entergy, would also limit the Arkansas commission’s ability to block power projects proposed by the state’s utilities and could even force Arkansas ratepayers to fund energy projects in different states. According to …the Arkansas Democrat-Gazette, Entergy officials helped draft the bill over the objections of commission staff, who called it a giveaway to industry. Only three months after the bill’s passage, another regional power company asked the commission for approval to charge customers in Arkansas for the construction costs of two natural-gas plants in in Texas.
The Arkansas commissioners are all appointed by Republican governor Sarah Huckabee Sanders. In Louisiana, commissioners are elected, and this recent measure was approved 4 to 1.
In short, not matter what rationale for consumer rate increases, they are going to keep happening until we have real regulation whose mandate is not serving the companies and their shareholders, but all of us. That will be a huge lift, and not likely anytime soon.