utilities and the data center boom: learning from the fiber era

Regulated utilities can benefit from the data center boom without repeating the fiber era’s stranded-asset losses because regulation and customer contracts transfer much of the downside to the parties creating the demand.

• The late-1990s fiber buildout installed roughly ten times more network capacity than realized demand, leaving telecom operators and creditors with stranded assets because there were no contractual load guarantees or regulated cost recovery.
• A December 2024 U.S. Department of Energy report projects data center and AI electricity consumption to increase from about 176 TWh, or 4.4% of U.S. load, in 2023 to 325–580 TWh, or 6.7%–12%, by 2028.
• Utilities must obtain regulatory approval for infrastructure as “used and useful,” while hyperscalers are increasingly signing agreements with minimum usage obligations, ramp-up schedules, exit fees and parent guarantees.
• Regulators in several states are assigning the cost of new generating capacity to data center customers, and some contracts provide additional benefits to other ratepayers.
• NiSource’s NIPSCO expects its Amazon data center agreement to deliver roughly $1 billion in ratepayer savings through bill credits.

Takeaway: For credit investors, regulated utilities appear relatively insulated from an AI demand shortfall because prudence reviews, contractual protections and cost recovery should confine losses to specific counterparties, although the conclusion depends on the durability of projected power demand and the effectiveness of these protections.