Jim Kapsis is the founder and CEO of The Ad Hoc Group, and previously was the VP of market development at Opower, as well as an official in the U.S. Treasury Department. This piece was adapted from The Ad Hoc Group’s newsletter, The Gist.
There’s a lot at stake in November’s elections. But my eyes are already focused on the days after, when politicians will have a narrow window to answer three transformational questions for the future of our power system:
- How do we build the data centers powering the artificial intelligence boom without provoking a political backlash?
- How do we deploy the generation and transmission needed to meet soaring electricity demand and bring more clean power onto the grid?
- How do we protect communities from wildfires without bankrupting utilities?
Data centers need a new political bargain
Data center development has accomplished something unusual by uniting voters on both sides of the aisle in their opposition. In most places, data centers still aren’t a top-tier issue for voters. But the people who are angry about them are very angry. Politicians are responding by pressing the pause button to lower the temperature.
Hyperscalers, utilities, and policymakers have six to nine months to develop a new paradigm — one that delivers tangible benefits for communities while addressing concerns about electricity costs, infrastructure ownership, and environmental impact.
Why the urgency? Well, the 2028 presidential campaign will effectively begin as soon as the midterms end. Major candidates will stake out public positions on data centers as early as the first primary debates. If data centers remain politically toxic, candidates in both parties will have every incentive to run away from them. Right now, that seems more likely than not.
But most policymakers understand that simply stopping data center construction is not a long-term solution when investment in AI and infrastructure is driving the stock market up and keeping an otherwise tepid economy afloat. No politician or political party will want the music to stop on their watch.
I’ll be watching Virginia’s proposed distributed capacity reduction credit program and Minnesota’s imminent decision on Google and Xcel’s Pine Island data center proposal for glimmers of hope.
Permitting reform gets its moment
Congress, meanwhile, has a real opportunity to address permitting reform in the lame-duck session by passing the Bipartisan American Affordability and Jobs Act.
If Democrats take the House and Senate, they may be inclined to wait until next year and pass a better bill in the hope that President Trump would sign something that better addresses their priorities. But that’s a major risk when there is already a bipartisan deal on the table.
Energy investors need certainty. Projects that take years and billions of dollars to develop — whether natural gas pipelines or wind farms — don’t work well when the rules swing from one administration to the next. That uncertainty raises costs for consumers as investors require a risk premium to invest in a politically unpredictable market.
Historically, environmental opposition has derailed permitting compromises over concerns that making clean energy infrastructure easier will also make fossil infrastructure easier. The clean energy industry is loudly shouting “Not this time” to those environmental advocate allies. Leading environmental groups are still reviewing the legislation or pushing for changes. My sense is they are quietly opposed. They may not be so quiet after Election Day.
The other big constituency to watch is utilities.
One of the bill’s most consequential provisions involves interstate transmission. Utilities have often had the first opportunity to build and own transmission within their territories, which are valuable assets they can earn returns on for decades. The Senate proposal would open more transmission development to competitive procurement.
So far, the utility sector is either split or waiting on the sidelines. AEP and Berkshire Hathaway Energy support the bill, for example, while Edison Electric Institute is still reviewing it.
I’m watching what happens with the supposed side deal with the White House to approve 30 wind farm permits through the Pentagon as a sign of good faith before the bill goes to a vote. A durable compromise that allows substantially more infrastructure to get built could be worth more than waiting for the perfect bill.
Defusing the utility wildfire liability time bomb
Then there’s California.
Wildfire liability legislation unexpectedly failed in Sacramento in August, leaving a fundamental question unresolved: When a catastrophic wildfire occurs, who pays, and how much?
The market responded by haircutting the value of both Pacific Gas & Electric and Edison International by more than 20%, while ratings agencies downgraded their outlooks. In effect, it just became even more expensive to run a California utility — pain that will ultimately flow down to ratepayers. When investors can’t predict utilities’ exposure to the next catastrophic fire, both financial risk and the cost of capital rise.
The problem won’t stay confined to California for long. Utilities across the West increasingly face the same combination of climate risk, expensive grid-hardening, and potentially enormous liabilities.
California has a narrow opportunity after the election to reach a deal, and other Western states should be paying close attention. Utilities, insurers, and trial lawyers are trying to broker an agreement, but the legislature only has until November 16 to act in a special session or the issue will get punted to a new governor and next year’s lawmakers.
The precise liability formula matters, but so does having one at all. Just as in the case of permitting reform, uncertainty has a cost — for utilities, investors, taxpayers, and customers.
Don’t wait for the crisis
We can wait until political opposition brings data center development to a halt, inadequate transmission further constrains electricity supply, or another catastrophic wildfire pushes a utility toward insolvency.
Or we can use the window after this election to make difficult choices before circumstances make them for us. Waiting may be the riskiest decision of all.
