US utilities boosting capex plans to meet demand from power-guzzling sectors

Evergy

22/11/2024 12:57

By Seher Dareen and Vallari  Srivastava 
       Nov 22 (Reuters) - Major U.S. utilities are expected to
spend heavily on upgrading their electric lines and grids over
the next five years to cater to power-hungry sectors, although
experts worry that their plans to raise rates sharply to offset
higher costs may face regulatory hurdles.
    In the past few weeks, about nine utilities had raised their
capital expenditure forecast by 22% on average for the three
years starting in 2025, as they expect insatiable demand from
AI-focused data centers and battery-powered electric vehicles.
        A Reuters analysis showed that four of these utilities
had raised their capital spending by record levels. 
  
        
    Evergy
      EVRG.O , a utility that serves Kansas and Missouri states,
boosted its rolling five-year investment plan by $3.7 billion,
in its biggest revision since 2018 with a 29.6% hike.
  
        American Electric Power  AEP.N , which serves 11 states
and nearly five million people, revised its plan by up to $54
billion - a 25.6% hike and the highest since 2016.
  
     The hefty hikes in capital spending, driven by the bullish
power demand forecast, is quite new for the sector, industry
experts said.
    They also noted that utilities, whose capital program is not
heavily dependent on rate cases, will likely have an edge.
    Investors will look more favorably at utilities that do not
have any rate cases scheduled for next year, as that minimizes
uncertainty related to their capital program, said Nicholas
Campanella, head of U.S. power and utilities research at
Barclays.
    "You have so much riding on these rate case outcomes. If you
get a bad decision, you're going to have to cut CapEx - you're
going to have to reprioritize where you're investing the dollars
and obviously the stocks are going to go down," Campanella
added.
    Utilities generally supplement their capital plans by
charging customers more for power supply.
    From the beginning of 2023 through August 2024, regulators
approved 58% of requests for rate increases by utilities, the
U.S. Energy Information Administration said.
    The rate case overhang notwithstanding, some experts still
expect the aggressive growth in capital spending to continue.
     "I think it's still got to double. So if you think about
the next five to ten years, you're probably going to see this
kind of rate of growth or something similar to it," said Chris
Ellinghaus, analyst at Siebert Williams Shank. 
    The capital spending growth will not be limited to the
utilities sector alone. Goldman Sachs analysts see investment in
data centers and hardware equipment leading to a rebound in
overall capital expenditure growth in the U.S. next year.

 (Reporting by Seher Dareen and Vallari Srivastava in Bengaluru;
writing by Mrinalika Roy; Editing by Anil D'Silva)
 ((Seher.Dareen@thomsonreuters.com; If in India call +91 74832
70128;))