AI Is About to Boost Power Bills—Who’ll Take Heat for That?

This is a windfall for independent power producers such as Talen Energy TLN -3.08%decrease; red down pointing triangle, Constellation Energy Group CEG -1.15%decrease; red down pointing triangle and Vistra VST -0.86%decrease; red down pointing triangle, all of which own a sizable number of power plants that cleared the latest auction. Constellation’s shares have jumped 12% since the company reported last week that its earnings would get a healthy boost from high capacity prices. If they remain high in 2026, the company expects that to boost earnings by 14% compared with analysts’ earnings expectations before the auction results. Vistra on Thursday raised the midpoint of its 2025 guidance for earnings before interest, taxes, depreciation and amortization by $200 million, or about 4%, partly as a result of higher capacity prices. Its shares have gained 6% since its earnings call.

High prices should encourage more companies to build new power plants, but they can take up to five years if built from scratch, notes Hugh Wynne, co-head of utilities and renewable energy research at SSR. “What we’re seeing in the [latest] capacity auction is the tip of the iceberg,” said Wynne, referring to future capacity needs. This means the capacity price windfall could last a few more years for companies such as Constellation and Vistra.  

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But high prices also come with risk of political backlash and court challenges, said Steve Fleishman, equity analyst at Wolfe Research. The utilities that purchase electricity from these producers have already signaled that bills will rise: Chicago-based utility Exelon EXC -0.54%decrease; red down pointing triangle said in its latest earnings call that rates will increase by a double-digit percentage in some of its jurisdictions as a result of higher capacity prices. PPL Corp., PPL 1.02%increase; green up pointing triangle whose service territory includes Pennsylvania, Kentucky and Virginia, said higher capacity prices would increase utility bills by $10 to $15 a month starting next year.

The strains could reshape the industry. Utilities in certain states aren’t allowed to own power plants, but some are hinting that they will push for legislation to change that. PPL said during its latest earnings call that it would advocate for legislative changes in Pennsylvania that would allow it to do so. Similarly, FirstEnergy FE 0.55%increase; green up pointing triangle floated the idea that some states might change their rules to allow utilities to invest in their own generation.

Another point of conflict came up earlier this summer, when utilities—including Exelon and American Electric Power AEP -0.40%decrease; red down pointing triangle—pushed back on an aspect of Talen Energy’s agreement to sell nuclear power to an adjacent Amazon AMZN -0.08%decrease; red down pointing triangle data center in Pennsylvania, arguing that the power plant would benefit from the transmission system without paying for it. They estimated that as much as $140 million of costs could shift to other customers as a result.

The Federal Energy Regulatory Commission sought more information about that agreement earlier this month, and analysts at energy research firm ClearView Energy Partners think Talen can get the green light from FERC. The overhang could nevertheless create some delays for companies like Constellation and Vistra, which are vying for long-term, high-price contracts similar to the one that Talen inked. Constellation was said to be nearing a deal with Amazon Web Services, as The Wall Street Journal previously reported. Vistra said on Thursday that it was talking to potential data-center customers but didn’t give a timeline on when a deal might be reached. FERC is also set to hold a conference this fall to discuss broader issues related to co-locating large loads near power plants.

Also worth watching are states’ changing stances toward data centers. While many have pushed forward incentives to lure the facilities, some are having misgivings. Georgia earlier this year passed a bill that would have halted the state’s tax incentives for new data centers for two years, though that was ultimately vetoed by the governor in May. Virginia, which also has tax breaks for data centers, is conducting a legislative study to examine how they are affecting electric reliability and affordability.

Power-plant owners are reaping a bonanza, but not without new risks, too.

Write to Jinjoo Lee at jinjoo.lee@wsj.com