US Utilities Finally Find the Right Catalysts for a Capex Hike as Power Price Gains Exceed Inflation

US electricity prices grew faster than inflation throughout each month of the first quarter. If this trend persists, it could help to bolster utilities’ margins going forward. Underlying the sudden uptick in rates is burgeoning demand growth from data centers and other cutting edge technologies across several different sectors. Industrial and commercial electricity use have been stagnant in the US for most of the past two decades, but that is set to change in the months and years to come. 

Utilities’ expected capex expenditures are being increased quickly as grids across the nation will need to scale up their output levels to keep pace with the intense power demands of generative AI applications, autonomous driving features, and advanced chip fabrication. The US is also the global leader in Bitcoin mining, which may now comprise more than 2% of the country’s total electricity consumption. Rising revenues from improved power pricing and the likelihood of lower interest rates in years to come would ease the burden of construction spending.

Related ETF: Utilities Select Sector SPDR Fund (XLU)

Though gains in electricity prices had broadly trailed inflation in 2023, Bureau of Labor Statistics data shows growth in power prices have surpassed broad consumer price inflation in each month of 2024. Electricity prices in the Consumer Price Index (CPI) grew by 5.0% YoY in March, the fastest rate recorded since last June. Meanwhile, the annual gain in the total CPI was equivalent to just 3.5%. Increasing electrification and a re-industrialization of the US economy is likely to sustain strong growth in power demand, benefiting US utility providers. In a recent Intelligence Briefing, MRP recently noted that the quickening adoption of generative AI applications has flipped the script for American power providers who had dealt with a decade-and-a-half of slowing growth in electricity consumption until very recently. Other emerging sources of increasingly hungry US power demand, however, will come from the automotive, manufacturing, and digital asset sectors.

Since 2004, industrial use of electricity has not exceeded an estimate of roughly 1.0 trillion kilowatt hours. Similarly, commercial electricity usage has been rangebound between 1.3 and 1.4 trillion kilowatt hours. Per the International Energy Agency (IEA), the US’s 2,700 data centers consumed more than 4% of the country’s total electricity in 2022, but that figure is projected to grow to 6% over the next two years. As data centers increase their share of electricity consumption, they will also expand US electricity use in general. Recent trends however, are expected to disrupt this pattern of relative stagnation. Per Grid Strategies, reports filed in 2023 with the Federal Energy Regulatory Commission show grid planners expect…