The AI boom is triggering a wave of regulatory battles across the United States, as governors, attorneys general, and state lawmakers move to block or scale back proposed electricity rate increases. Cash-strapped households in at least six states are facing steeper bills while investor-owned utility parent companies report profits that have surged into the tens of billions, setting up a midterm election-year clash over who should finance the grid upgrades required to power artificial intelligence infrastructure.
Pennsylvania Governor Josh Shapiro (D) took the fight to the corporate boardroom earlier this month, pressuring PECO — a Philadelphia-area subsidiary of Exelon Corp. — to withdraw a proposed 12.5% rate hike that would have added roughly $20 per month for the average residential customer. In a follow-up letter to utility executives, Shapiro declared that the “20th century utility model is broken,” writing, “We can no longer simply prioritize corporate profitability to drive infrastructure development.”
PECO’s decision to pull the request followed conversations with stakeholders who advised that the timing was poor for an increase. Exelon CEO Calvin Butler told analysts on a May 6 first-quarter earnings call that the company is committed to justifying its spending and keeping residential bills as low as possible. “Affordability is probably the number one issue that executives and investors are thinking about right now in the utility sector,” said Travis Miller, an energy and utilities analyst at Morningstar.
The political pressure is spreading to Indiana, where Republican Governor Mike Braun appointed a new slate of utility commissioners tasked with confronting proposed rate hikes. Their first test involves a request by AES Indiana — whose parent company is being acquired in a $33.4 billion private investment deal led by BlackRock — for a 10.1% increase that would draw an additional $193 million annually from ratepayers. Ben Inskeep, program director for the Indianapolis-based Citizens Action Coalition, noted that lowering AES Indiana’s requested return on cash from 10.7% to 8% would cut the proposed rate increase nearly in half.
In Arizona, Democratic Attorney General Kris Mayes, who is running for reelection this year, is challenging two separate 14% proposed rate increases in front of the state’s regulatory board. “I felt like it’s never been more important to stand up against the blatant corporate greed of our monopoly utilities in Arizona,” Mayes said. She added that the cost of service “is becoming unbearable for the people in Arizona,” and that officials must fight back.
The pushback coincides with a broader shift in energy markets. Voracious power demands from AI data centers have sparked a construction boom in the energy sector and pushed electric prices higher in several regions. A March report from the Energy and Policy Institute found that the aggregate profits of 110 for-profit utilities rose from just under $39 billion in 2021 to over $52 billion in 2024. Mark Ellis, a former utility executive turned consumer advocate, estimated that roughly 10% of a typical customer’s bill represents “excess profit” above what might be considered reasonable under longstanding Supreme Court precedent. Ellis suggested that instead of regulators guaranteeing returns that exceed market requirements, utilities should compete for the lowest-cost investor capital.
“We’ve entered into this era of expensive energy and (demand) growth, and we’re seeing utility profits at record highs and rising utility bills,” said Matt Kasper of the Energy and Policy Institute, which advocates for lower rates and renewable energy adoption.
Utilities and their defenders argue that the investment returns granted by state regulators are essential to raising the capital needed for grid maintenance, reliability, and modernization. They also point to federal data showing that home electricity bills as a proportion of household income have declined over the past two decades. Industry representatives warn that if states arbitrarily cap returns, investors will redirect capital to jurisdictions that offer higher guarantees. Critics of the utility model call that warning fearmongering.
“That’s an action that’s aiming to address the deep social disagreements we have about who should benefit from essential infrastructure,” said Paul Ferraro, an economics professor at Johns Hopkins University. Ferraro said such moves aim to address societal disagreements over who benefits from essential infrastructure, but cautioned that they will not resolve the sector’s core challenges, including funding modernization, expansion, renewable integration, and distributed power sources.
Other states are launching formal reviews of the regulatory compact. The New Jersey Board of Public Utilities recently initiated what board president Christine Guhl Sadovy called one of the most consequential regulatory reviews in a generation, aiming to determine how utilities “should earn revenue in a modern energy system.”
As the midterm elections approach, energy affordability has become a central theme for Democratic candidates seeking to counter Republican control of federal policy. Industry leaders maintain that predictable returns are the only way to finance the massive grid upgrades required for the AI era, while state officials increasingly argue that the current financing model places an unsustainable burden on everyday ratepayers.