Do not weaken the utility model when the grid needs it most

Editor's note:Scott Aaronson spent 17 years at the Edison Electric Institute, the national trade association for investor-owned electric utilities, where he served as Senior Vice President for Energy Security and Industry Operations and Secretary of the Electric Subsector Coordinating Council. He is now the founder of Aaronson Resilience Advisors.

For nearly two decades, U.S. electricity demand remained flat. Efficiency gains offset growth, the grid aged quietly, and on most days, that was fine. That era is over. The United States is entering its steepest sustained load growth since the Eisenhower administration—driven by artificial intelligence and data centers, but just as importantly by reshoring of advanced manufacturing, electrification of transportation, and electrification of the broader economy. The grid must be built for it.

That reality is colliding with a political moment. Rising energy costs are dominating headlines and shaping policy agendas across the country. Policymakers are paying attention, and they should be—affordability is a real concern, and low- and middle-income households are feeling the squeeze on every front. But many of the proposals currently on the table target utility equity returns and their ability to invest in infrastructure, on the theory that cutting both will lower electric bills—and that will inflict lasting damage on the only system capable of delivering the grid we need.

This line of thinking has the problem exactly backwards.

The regulated utility model does two things at once that no other arrangement can. It allows a company to raise large amounts of long-term capital through a combination of debt and equity, and every dollar of spending is subject to regulatory review for prudence, reliability, and cost. The return on equity is simply the price paid to attract the equity portion of that capital. Set fairly and reasonably, utilities borrow and finance at low cost, building tomorrow's grid at the lowest possible cost of capital. Cut it below what is fair and reasonable, and you don't make investment disappear—you make it more expensive. Investors will demand a higher risk premium, borrowing costs rise, and customers will pay for those costs for decades, with interest.

Capital is not free, and pretending it is won't lower bills—it will only defer and inflate them.

There is a deep irony in the current attacks. Critics claim that the return on equity tempts utilities to overbuild, pouring capital into projects in pursuit of returns. Setting aside that regulators exist precisely to prevent imprudent spending—reviewing whether an investment is necessary is the entire job of a public utility commission—the deeper issue is that there is broad bipartisan consensus that we need more investment, not less. Hardening the grid against hurricanes and wildfires, or against human threats like cyberattacks; building more transmission to add redundancy and access; connecting the new loads and generation resources waiting in years-long queues. As a country, we are asking the grid to do more while simultaneously weakening utilities' ability to finance it—and at precisely the moment when a modern grid can benefit every customer.

This matters most for resilience, and resilience is about far more than data centers. It is about families in the path of increasingly intense hurricane seasons, communities preparing for the next wildfire, regions left in the dark because an isolated market has no neighbor to call on—or because they are targets for adversaries. The intuition behind virtual power plants and distributed energy resources is right—we should want every available asset on the system. But the value of those resources depends on the grid they connect to. A distributed resource that is not part of a well-funded, well-operated network is only half an asset, and a fragile half at that. Resilience must be designed into the system, not bolted on after the storm, and that requires capital and the model for raising it.

The regulated model is also our best tool for putting costs where they belong. It can isolate the cost of serving large new loads and assign it to the customers driving them, so that a family in Cleveland or Charlotte doesn't pay for the demands of a hyperscale data center. It can channel federal cost-sharing toward transmission projects of true national significance, because their benefits are widespread. This disciplined cost allocation is a feature of regulation—not something a race to cut returns can produce. The Federal Energy Regulatory Commission's recent show-cause order was right: this is work for state regulators.

What won't cutting returns deliver? It won't lower your electric bill next month. This is about the next decade and beyond. Utility investments are long-term; capital raised today will be repaid over the life of assets serving our children and grandchildren. Short-term decisions to squeeze utility finances won't disappear—they will resurface as higher borrowing costs and a more fragile grid, long after the officials who made those decisions have left office. This is about whether we can build a grid that supports the economy for the next fifty years, and what it will cost us if we don't.

The utility business model is what best serves affordability. Ensuring that regulators work with utilities and other stakeholders to set a fair return on equity at the state and federal levels is the right conversation. A conversation that starts with arbitrary cuts in pursuit of quick political wins is not.

This industry has built this kind of infrastructure before. It is how we built the original grid and electrified every corner of America—by deciding to invest, and then implementing it through the utility model. We are at a similar moment again. The tools to meet it are already in our hands: a proven business model, disciplined regulatory oversight, and a fair return on equity that lets utilities build at the lowest possible cost while protecting low- and middle-income residential customers.