Clarity in Credit

Power Hungry -- North American Utilities Invest for AI Boom

Episode Summary

In the latest episode of our “Clarity in Credit” podcast series, Arnaud Journois, Senior Vice President of European Financial Institution Ratings, and Chloe Blais, Vice President of European Corporate Ratings, Diversified Industries & Energy, are joined by Bukola Folashakin, Assistant Vice President of Energy & Natural Resources Ratings to discuss data centers.

Episode Notes

With more data centers becoming operational, electric utility companies are experiencing an unprecedented surge in demand across many North American service areas. Investment in electricity infrastructure is projected to be $1.4 trillion from 2025 to 2030, double the amount invested in the prior 10 years.

KEY HIGHLIGHTS:

The U.S. is projected to lead data center electricity consumption until 2030, and demand growth will be led by states that have emerged as data center hubs. Utility companies in Virginia, Ohio, Arizona, and California are ahead of others in planning for the additional demand for power.
However, data centers aren’t the only disruptors in the sector. Demand for power is also increasing from electric vehicles and charging stations, public transit systems, heating and cooling infrastructures, as well as manufacturing and agricultural industries. Growing demand raises concerns around supply adequacy in extreme weather scenarios.
Regulated utility companies have a dedicated franchise area of operation. Regulators use several mechanisms to ensure the reliable supply of electricity at a fair rate for all consumers. Among others, these mechanisms include setting the allowed return that utility companies can earn on the equity portion of their investments and ensuring recovery of their capital expenditures.
Uncertainty about the extent of the demand for power poses several challenges to utility companies, including potential infrastructure overdevelopment and delays in cost recovery. Further, funding gaps could increase as traditional funding sources are inadequate to meet future investment needs. In addition, regulatory lags in approvals for rate increases could exacerbate pressure on the overall financial and credit resiliency of these companies.
Managing capital expenditure is critical from a credit risk perspective. Capital investment on a large scale could have an adverse impact on the credit profiles of utility companies if such investments are not supported by adequate equity injections to maintain regulator approved capital structure or if the capital program is prolonged and large relative to the size of these companies

RELATED CONTENT:

Commentary: Power Hungry Data Centers Raise Capex Forecasts for North American Utilities: https://dbrs.morningstar.com/research/465430

Catch up on these topics and more thought leadership from across the Fundamental Ratings teams and around the globe via our monthly Consider Credit newsletter: https://dbrs.morningstar.com/research/458585.

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