Source: Jin10 Data

The stock of the power plant owner has risen sharply this year compared to$NVIDIA (NVDA.US)$sometimes even surpassing. $Constellation Energy (CEG.US)$The stock price has doubled. $Vistra Energy (VST.US)$And.$Talen Energy (TLN.US)$The stock price tripled. Ai computing programs require a large amount of electrical utilities, and technology companies are willing to pay a high price to ensure the supply of electricity.

However, these increases may have limits - even under the Trump administration.

The bullish sentiment of electric power stocks is partly based on agreements between technology companies and power plants, whereby data centers are directly connected to power plants. Data centers will receive dedicated power, and electricity companies will receive guaranteed payments at prices higher than the market. However, on November 1, federal regulatory institutions rejected the first agreement of this kind, namely the one with Talen, to connect its data center to a nuclear reactor owned by Talen in Pennsylvania (as nuclear power is considered reliable and clean, the demand is particularly high). As a result, the stock prices of Talen and Vistra decreased by 2% and 3% respectively, while the stock price of Constellation, the largest nuclear power plant owner in the USA, dropped by 12%.$Amazon (AMZN.US)$This ruling was made by the Federal Energy Regulatory Commission (FERC), which is responsible for regulating the entire U.S. grid. Nearby utility companies believe that Amazon is attempting to draw power from the grid without sharing the costs of maintaining the power transmission network. A member of the FERC wrote that Amazon's plan 'may have a significant impact on the reliability of the grid and consumer costs.' Talen stated that FERC's ruling is wrong and will inhibit economic development. Amazon had no comment on this.

The decision by FERC indicates that the extent to which electric power companies benefit from special data center agreements is limited.

This year, electric power stocks and technology stocks have risen together as there is a high demand for electricity from data centers. However, these two industries will not always develop synchronously because of the different roles they play in society. Electricity is a public resource that needs to serve a wide range of customers, including fixed-income elderly people and economically challenged families. If Nvidia charges high chip fees, no one will care, but if the electricity bills for elderly grandmothers increase significantly, regulatory agencies will take notice.$Microsoft (MSFT.US)$Electricity prices have been rising. From 2021 to 2023, the average retail electricity price increased by 17%, continuing to rise this year. The demand from electric vehicles, factories, and data centers is one of the reasons for the increase in electricity prices. Analysts predict that by 2030, the electricity usage of data centers could triple, accounting for 10% of the total US power demand.

Regulators, utilities (responsible for operating the grid), and consumer advocacy groups are starting to scrutinize the beneficiaries and payers of power contracts more closely. The ruling by FERC is just one example.

The largest grid operator in the USA, PJM, recently postponed a power auction in response to complaints from the Sierra Club and consumer advocacy organization Public Citizen. They believe that PJM overpaid companies like Talen, Vistra, and Constellation to ensure reliable power supply. The expected payments from the last PJM auction were nine times higher than current prices, inevitably leading to consumer price increases.

PJM states that higher tariffs are necessary to encourage more electricity companies to build power plants and increase power supply to meet the growing demand. However, if regulators find these payments to be too high, electric power companies may lose profits, and consumers may receive refunds. The attractiveness of future auctions to electric power companies may also decrease.

The decision by FERC indicates that the extent to which electric power companies benefit from special data center agreements is limited.

In addition, some public utilities companies require technology companies to pay more for electricity to power data centers.$American Electric Power (AEP.US)$The company's Ohio division stated that the surge in electricity requests from data centers is expected to double the region's power demand over the next ten years. Building all these power lines is not cheap, and American Electric Power is asking technology companies to pay more. Settlement of the related cases is still ongoing.

Ultimately, regulators will have to determine who will foot the bill for all these power infrastructures. Some of these costs will be borne by technology companies, some will be directly passed on to consumer bills, and some may be absorbed by public utilities companies. Owners of power plants like Vistra, Constellation, and Talen selling electricity to utilities and businesses should still benefit, but their profits are not unlimited. Their stock prices have already anticipated significant profit growth in the coming years. For example, Constellation's stock is trading at 19 times its projected earnings for 2028.

Electricity politics may become more complicated. Two FERC commissioners, Republicans, who voted against the Amazon agreement, while the sole dissenter was a Democrat. (Two other Democratic regulators recused themselves for unexplained reasons.) Tyson Slocum, head of the Public Citizen Energy Program, said that although Republican-appointed regulators tend to lean towards corporate interests, the situation is not always the same in the electricity market. Texas Lieutenant Governor Dan Patrick, a conservative Republican, expressed concerns about how the growth of data centers affects electricity consumers in Texas.

"Electricity is a 'hot political issue'," Slocum said. "Any policy perceived as exacerbating energy costs—because energy costs are fundamentally regressive—could become a focal point of contention."

He believes that new political alliances are forming and may impact companies. "There are very interesting stakeholder divergences here," he said. "This is unprecedented."

Editor / jayden