The artificial intelligence boom has turned electricity affordability into a front-burner political fight in multiple U.S. states, where governors and attorneys general have begun challenging proposed rate hikes while data-center construction drives higher demand. The core dispute is whether utility regulators should allow utilities to earn large returns during a period when household bills are climbing—and whether the current “utility model” is keeping pace with modernization needs and broader infrastructure investment.
Arizona is one of the states where the pressure is directly aimed at the regulatory process. Arizona Attorney General Kris Mayes, seeking reelection this year as a Democrat, is challenging two utility rate increase requests before the state’s utility regulatory board, and she said in an interview that it was “never been more important to stand up against the blatant corporate greed of our monopoly utilities in Arizona.”
New Jersey has also launched an effort aimed at the earnings framework for utilities. Earlier this month, the New Jersey Board of Public Utilities began what its president, Christine Guhl Sadovy, described as one of the most consequential regulatory reviews in a generation, saying the board wants to question how utilities “should earn revenue in a modern energy system” as the grid faces changing demands.
In Pennsylvania, the push has included direct public pressure on a specific rate case. In recent weeks, Gov. Josh Shapiro pressured PECO—an Exelon Corp. subsidiary serving the Philadelphia area—to withdraw a 12.5% rate increase, or $20 per month extra for the average residential customer, and he later issued a letter to utility executives criticizing utility profits and saying that the “20th century utility model is broken.” In an investor context, one analyst described the episode as “Quaker State Sticker Shock,” and the share prices of companies that own Pennsylvania-based utilities lagged peers in the days that followed.
Exelon, the Chicago-based parent company of multiple utilities including PECO and Baltimore Gas and Electric, said it understands the affordability issue. Calvin Butler, the company’s president and chief executive, told analysts during Exelon’s first-quarter earnings call May 6 that it was committed to justifying what it spends and keeping energy bills as low as possible, and he said Exelon withdrew its rate increase request after conversations with “stakeholders” who indicated that “Hey, if you could partner with us to address the affordability issue and lean in, timing is not the best right now.”
Consumer advocates and some researchers argue the rate fights reflect more than electricity costs driven by AI. Matt Kasper, of the Energy and Policy Institute, said the issue is not only higher prices tied to demand growth but also “utility profits at record highs and rising utility bills,” and he described an era of “expensive energy and (demand) growth.” The Energy and Policy Institute issued a report in March that said the profits of 110 for-profit utilities rose from just under $39 billion in 2021 to over $52 billion in 2024.
Some critics target what they call “excess profit” allowed under regulators’ return-setting rules. Mark Ellis, a former utility executive turned consumer advocate, said about 10% of a typical customer bill is what he described as a for-profit utility’s “excess profit,” above what might be considered reasonable under long-standing Supreme Court precedent. Ellis said regulators should seek the lowest-cost investor cash, similar to how borrowers seek a lower interest rate, rather than setting returns above what markets might require.
Economist Paul Ferraro, an economics professor at Johns Hopkins University, said focusing on utility investment returns is political rather than purely economic. “That’s an action that’s aiming to address the deep social disagreements we have about who should benefit from essential infrastructure,” Ferraro said, adding that it would not address the key challenges the power system faces, including modernization, expansion, renewable energy and distributed sources of power.
Utility executives and their allies argue regulators should still allow returns that provide capital for maintaining and upgrading the grid. They point to federal data showing that home electricity bills as a share of household income have fallen over the past couple of decades, and they say investment returns granted by state regulators are critical for raising the cash needed to ensure reliability for millions of customers. Utilities also warn that if rates are constrained too much, investors may shift their capital to other states offering higher returns, which critics call fearmongering.
The rate fights are unfolding alongside a political environment where affordability has become a major campaign theme. The AP story described the push as emerging during a midterm election year in which affordability leads Democrats’ efforts to loosen Republicans’ control of Washington, and it noted that Wall Street has taken notice as utility companies benefit from the data-center-driven construction boom.
As another example of the political pressure surrounding utility earnings, Indiana’s Republican Gov. Mike Braun appointed a new slate of utility commissioners with a mission to face down rate increases. Their first major test involves a request by AES Indiana for a 10.1% increase, or $193 million a year more from ratepayers, according to Ben Inskeep, program director for the Indianapolis-based consumer advocate Citizens Action Coalition, who said AES Indiana sought a 10.7% return on its cash. Inskeep said an 8% return would slash the proposed rate increase nearly in half.
In Arizona, Mayes said the stakes are personal for residents. She told AP, “It’s becoming unbearable for the people in Arizona,” and said she thinks the increases could be reduced “if the companies are simply paid the cost to maintain reliable service.”