Eight Slides on the Future of Electricity Prices
Understand tomorrow's rate hikes, today!
“We are living in the future, I’ll tell you how I know, I read it in a rate case, 15 months ago.” John Prine, if he were an electricity analyst
If you want to understand where electricity prices are going in the future, you need to pay attention to Integrated Resource Plans and rate cases filed at utility commissions today. This is a key reason why we purchased a subscription to the S&P Global Capital IQ database, which has extensive data on these proceedings.
All of the slides you are about to see are from S&P’s North American Electric Utilities Review, which is a quarterly update on key trends and themes in the performance of 39 investor-owned utilities in the U.S. and five in Canada.
Capital Spending is Set to Explode
As we detailed in Greenplating the Grid, utilities make their money by spending money on capital assets. As long as utility regulators approve these capital expenditures, utilities can earn a full rate of return on the assets, which is why so many of them adopted voluntary carbon-free goals—the “green” movement was essentially a blank check for utilities to rate base as much as they wanted.
From 2014 through 2024, utilities had a 7 percent compound annual growth rate (CAGR) for capital expenditures. S&P expects this to jump to 18 percent from 2024 through the end of 2025, and future forecasts will almost certainly revise these spending estimates upward to meet the growing load from data centers.
Demand Growth is a Huge Driver of Capex
Utilities have increased their spending plans by 19 percent compared to forecasts from early last year. The graph below shows the increase in capital spending for the utilities covered in the report.
Duke Energy has upwardly revised its capital plans several times in the last few years, with the latest revision seeing the utility potentially spending $100 billion in the coming years. Much of the new spending is targeted at meeting load growth, with gas generation and transmission cited as common reasons for rate increases.
Where’s the Money Going?
Capex in transmission and distribution is rising as a share of overall spending, along with renewables and storage, which are projected to account for 19 percent of overall capex in the next five years.
The graph below also shows non-renewable generation has been falling as a percentage of capex from 2014-2024, a critical component that was omitted by the Lawrence Berkeley National Labs report that received much media fanfare.
New Capacity to Increase 24 Percent
New capacity is set to increase by 24 percent in the next five years compared to estimates from earlier this year.
The vast majority of this new capacity is coming from NextEra, one of the largest developers of wind, solar, and battery storage projects in the country, which is almost certainly an attempt to ladle up as many taxpayer dollars before the IRA subsidies for wind and solar are set to phase out in the next five years.
This will continue the flood of unreliable wind and solar energy sources coming onto the electric grid, exacerbating the ongoing distortion of energy markets by eating into revenue streams of reliable generators, and without adding much benefit to meeting expected peak demand growth. Our country has built hundreds of thousands of megawatts (MW) of new capacity in the last decade during a period of low to no energy demand growth, and still has an energy supply crisis—people should start asking why. The answer is that most of this new capacity has been inefficient wind and solar generators that do next to nothing to actually contributing to reliability.
Zero-Carbon Generators Accounted for 35 Percent of Total Owned Operating Capacity
We would have used a different color scheme, but of the 39 IOUs detailed in the report, 35 percent of their installed generation capacity does not emit carbon dioxide.
There were a few surprises in the chart below. The first is that Xcel Energy, one of the most aggressive green-platers in the country, has only about 30 percent of its owned operating capacity as zero-emissions. ALLETE Energy was another surprise at around 70 percent of owned capacity, but that’s probably why its skyrocketing rates are contributing to Minnesota’s green deindustrialization.
The last surprise was the prevalence of utilities in the 20 to 40 percent range of zero emissions owned operating capacity. Many of the utilities in the south like Duke, Southern, Dominion, and Entergy hit this range due to their nuclear fleets, and the smaller Western utilities like DTE, WEC, and Alliant hit the number with rising shares of wind and solar.
Wind, Solar, and Storage Dominate Projected Capacity Additions
The utilities reported that 62 percent of their expected future additions would be wind, solar, or battery storage. This is down slightly from the 71 percent estimate in early 2025, reflecting a nod to the reality that we’ll need reliable power to meet rising demand for data centers, but this still represents a massive amount of malinvestment on the power system.
S&P uses different colors for different resources in these graphs, so make sure to check the legends carefully. Wind investments are expected to be concentrated among a few utilities.
Solar and battery storage are set for large expansions in the Dominion service territory as Virginia mandates more of these sources on the grid under the Virginia Clean Economy Act (VCEA), and California’s PG&E looks to add about 8,000 MW of battery storage (duration unstated) to manage wind and solar generation in the Golden State.
New gas generation coming online is encouraging, but some of this new capacity is being used to replace existing coal plants rather than meeting new demand. In our book, this is a mistake. The best way to alleviate price hikes for consumers and provide more power to industries is to keep existing resources online and add new capacity to meet the demand. Otherwise, we’re one step forward, one step back, and in the same pickle we started in.
More Spending Is Increasing Prices
The massive price increases can be seen in the graph on the left, which shows the trajectory surging upward around 2020.
Some of the sharp increase in 2021 is due to the fact that rate hikes originally scheduled to take place in 2020 were delayed due to COVID, and other inflationary factors include spiking costs for distribution and transmission equipment, and new state mandates for wind and solar taking hold.
It’s the Data Center Demand
Data centers are driving higher electric sales in many of the utilities detailed in the report, with AEP, and a handful of other utilities seeing their annual generation increase 5 to 10 percent above this time just last year.
Conclusion
Understanding the cost of electricity is not rocket science, and the data is pretty clearly showing that costs will continue to rise in the next five-year window due to capital expenditures.
While transmission and distribution charges as a share of overall capital costs have risen slightly, the surge in spending on wind, solar, and battery storage will soon account for 19 percent of all capital costs. If utility commissioners are worried about rising prices, the best place to start clipping capex plans is probably the generation resources that only show up if the weather cooperates.
What We’re Reading
Xcel, Colorado Agencies Propose Extending Life of Comanche 2 Coal Unit by Utility Dive. Energy reality makes a guest appearance in Colorado. Keep the coal plants rolling.
Proposed Bill Threatens Massachusetts’ Leading Climate Goals by the Boston Globe
“The bill “is a five-alarm fire,” said Kyle Murray, Massachusetts program director for the advocacy group the Acadia Center, who is among the many climate and clean energy advocates in the state dismayed by the proposed legislation.”
“Look, I voted for this stuff — I wish it was working,” said Cusack, referring to the state’s past climate and clean energy bills. “But between the high energy prices and the new reality because of the feds, I think this is a responsible path to say, ‘How do we get money back to our constituents?”
State of the Market Report for PJM- It looks like the curtailment theory of data centers championed by
has a few more flaws than originally advertised.
One of the greatest sleight of hand tricks in a sector built on sleight of hand tricks is NextERA and Florida Power Light and their unique legal/regulatory relationship. In a classic case of nothing to see here, both take advantage of the regulatory environment to gain rate base and market share as well as access to Wall Street investment capital. John Prine’s “Living in the Future” couldn’t be more accurate when one thinks that we have now come nearly full circle on the deregulation of the electric power energy sector. This mess makes Dodge City feel tame. MISO runs out of juice and calls on other ISO’s to bail them out and the others are struggling to meet their own demand. The New England States continue to set records on the speed in which they are doubling down on stupid to show, place and win, Maine a great example is doing its best to shutter the two sectors that make money, tourism and lobster fishing as they gleefully describe the fishing grounds of the Gulf of Maine as the Saudi Arabia of wind generation. The current governor of the Commonwealth of Massachusetts and former AG, is trying to distance herself from her successful lawsuits that ran Kinder Morgan and another pipeline developer off, and leave the state with the specter of buying LNG from now until the cows come in. Which will be a long time, since they want to ban cows, because of their methane gas emissions. Pay no attention to that wind turbine generator blade washing up on the beaches of Nantucket. The Horror. Go west young man look at California’s ongoing efforts to remove the Potter Valley Dam System, a 120 year old system that supplies local load and water resources for two counties. What possibly could go wrong? Nothing of course since those stalwart owners of the project Pacific Gas and Electric are right there in the mix with the looney bin in Sacramento, aka the state legislature. You can trust PG&E they are not like the others! Just ask their law firm, Dewy, Cheatham and Howe! In the final analysis this will come to a head in various states, as the tax payer and their shadow the rate payer look at a price of electric power delivered to their meter at .50 cents a kilowatt. Until then, as they say in Maine, it is 11 months of winter and one month of damn tough sledding. It will get much worse before it gets better. Paraphrasing Dean Wormer in Animal House “living in the cold and dark is no way to go through life.” That is correct Dean, but it will be reality here shortly.
EBBs, this is your money quote!
"Our country has built hundreds of thousands of megawatts (MW) of new capacity in the last decade during a period of low to no energy demand growth, and still has an energy supply crisis—people should start asking why. The answer is that most of this new capacity has been inefficient wind and solar generators that do next to nothing to actually contributing to reliability."
There is, I think, a way to combat this in many places. That is to use the "used and useful" doctrine to trim additions to rate base to what the generating sources actually contribute to service delivery. Assets that are quiet all night, or disappear at any time of day or night, by any reasonable definition are only partially "used and useful." It'll set off some fights in court, but that is preferable to the entire country being saddled with California or worse (UK) rates. Some states' enabling legislation does not mention "used and useful" but quite a lot does.