WRAPUP 1-US utilities spend big on rising data center demand, but affordability concerns loom

By Laila Kearney, Vallari Srivastava and Pooja Menon

Feb 12 (Reuters) - The largest U.S. electric utilities are ramping up spending on new power infrastructure to meet surging demand from data centers, with companies like American Electric Power AEP.O and Exelon EXC.O unveiling expanded investment plans on Thursday and fielding questions about rising power bills.

Utilities are adding power lines and other components to the grid as data centers -- needed for Big Tech's expansion of artificial intelligence technologies driving that growth -- lift U.S. electricity consumption out of two decades of flat demand. That demand has led to rising electricity prices for a large swath of the country and prompted fierce competition between power companies to capture the long-awaited growth.

Some regulated utilities, in markets like the Mid-Atlantic's PJM Interconnection, are now attempting to change state laws to be able to add more power supplies to the market.

AEP on Thursday said it is expanding its five-year capital plan beyond $72 billion after identifying an additional $5 billion to $8 billion in transmission and generation projects.

"We are in the midst of a generational load-growth phenomenon," said AEP CEO Bill Fehrman on a call with investors on Thursday, referring to the doubling of demand the company saw from potential data center customers over the last few months. "However, meeting this demand must be done responsibly."

Exelon, meanwhile, increased its four-year capital plan to $41.3 billion from $38 billion previously.

AEP's shares surged to a record high in Thursday afternoon trade and Exelon shares rose 8.8% after the results.

DATA CENTER DEMAND SWELLS

Following a flurry of announcements by power companies and the data center industry, many utilities are continuing to report ballooning electricity demand from data centers.

AEP said it now has agreements totaling 56 gigawatts of data center load, double the level in October, with requests for an additional 180 gigawatts.

While not all of that demand is expected to materialize, that combined capacity is enough to power all of the homes in the U.S.

AEP said 80% of its growth is driven by large hyperscalers, including Alphabet's GOOGL.O Google, Amazon.com AMZN.O and Meta META.O.

AFFORDABILITY

As utilities invest heavily to meet demand, they face mounting political and regulatory pressure to shield residential customers from rising bills.

"The conversation has definitely shifted to affordability," said James West, analyst at Melius Research, who added federal and state initiatives were being undertaken to rein in power bills.

Exelon is among the utilities operating within PJM Interconnection, North America's largest power grid and wholesale electricity market, where bills have risen more than 20% in some areas over the past year as data center demand projections outpace new supply.

Exelon has proposed allowing regulated utilities in PJM to build and own generation, a move that would require legislative approval in several Mid-Atlantic states where it operates and could challenge the market share of independent power producers.

CEO Calvin Butler said the company plans to advance that effort this year.

Independent power producers that currently own most generation in PJM have pushed back, arguing that utility ownership could shift costs onto captive customers who pay for regulated utility infrastructure spending in their bills.

"Right now, please keep in mind that everything centers on affordability and maintaining a reliable system," said Exelon CEO Calvin Butler on a post-earnings call with analysts on Thursday.

AEP, which also supports expanding regulated generation, said it aims to limit customer impacts through federal loans, state grants and revised rate designs.