Pennsylvania Gov. Josh Shapiro is fed up with his state’s utilities — and seemingly the entire investor-owned utility profit model — and this week sent them a remarkable letter challenging the entire premise of how they make money.
“As I’ve expressed publicly and privately, I believe the 20th century utility model is broken,” he wrote. “We can no longer simply prioritize corporate profitability to drive infrastructure development.”
Pennsylvania, which is part of the country’s largest energy market, is at the center of a nationwide conversation about load growth and who will have to pay for the infrastructure to meet it. PJM is grappling with a huge influx of data centers and other large loads, and there’s evidence that the new demand is translating directly to higher rates for customers.
In Shapiro’s letter, there’s the strong implication that utilities are taking advantage of this load growth to earn even more in profits. He wrote that in 2025, 13 utilities operating in the state requested $975 million in increases — but that “those very same utilities had earned a total of $1.4 billion in profits in 2024.” Meanwhile, PECO Energy in March sought a $429 million rate hike, which would increase its subsidiary Exelon’s revenue by 11%.
Research from PowerLines found that utilities nationwide are gearing up to spend even more in the coming years: $1.4 trillion over the next five years across 51 investor-owned utilities, more than 20% higher than last year’s estimate.
Shapiro echoed his own February budget address, wherein he said Pennsylvania customers should not have to “pay a single dollar more” for a “safe and reliable utility system.” He said his administration is prepared to support utilities to raise the money to modernize their systems, both with new technologies and with tools to make the most of the existing grid — but also encouraged utilities to procure that capital in more affordable ways so as not to burden ratepayers.
“Rising utility bills have themselves become drivers of inflation,” Shapiro wrote to his state’s utility leaders. “While there are many factors affecting those increases, several core causes are directly within your control and result from your policy and fiscal decisions, including the excessive rate requests several utilities have sought in recent years.”
He recommended three practices that the state of Pennsylvania plans to use to evaluate rate case proposals, and
- Raise cost-effective capital, with lower-cost debt representing a majority of a utility’s ratemaking capital structure, over more expensive equity. Shapiro specifically encouraged utilities to apply to the Department of Energy for loans.
- “Explain in plain, clear language” why a proposed investment is necessary either for the grid’s reliability or safety, or else for the customer’s benefit.
- “Transparent, justifiable equity returns” for utilities based on a benchmark arrived at via a public process — or in extraordinary circumstances, pegged to the Federal Reserve estimates of the stock market as a whole — rather than settlements that are challenging for the public to parse.
Pennsylvania utilities that want the Shapiro administration’s support for future rate cases will now be required to submit documentation of their compliance with these new practices to the “Special Counsel for Energy Affordability” alongside their filings. Shapiro added that his administration “will vocally and forcefully oppose rate case requests from utilities that fail to adhere” to these.
This new process would represent a significant departure from the way that IOUs typically do business: propose a cost of capital to be invested in the rate base (namely, in new infrastructure), then work with public utility commissions to determine a reasonable return that they can both finance and sell politically. As Rob Glen, who advises companies working on the energy transition and the grid, noted on LinkedIn, “it is not a market outcome—it is a regulatory one.”
But in an era where “electricity is the new price of eggs,” that political sell has been harder to make. And therefore Shapiro is proposing that markets truly drive the cost of equity. Glen described the third of these benchmarks, of “reverse-auctioning a portion of utility equity,” as its most disruptive element; it would essentially allow true competition between investors to inform the return rather than behind-closed-door negotiations alone.
If Shapiro’s administration is able to pull off what he’s proposing — and especially if other states take up the same practices — it could have a dramatic impact on how utilities set rates. And for Shapiro, that potential for sea change seems to be the point: “We have reached a tipping point,” Shapiro wrote, “and this is a moment to put your customers first and change the behaviors causing rate increases.”
