Evercore: AI consumes electricity rapidly, these 5 utility stocks have growth potential

Evercore ISI held the 11th Annual U.S. Utility CEO Conference from January 8 to 10 in Scottsdale, Arizona. The event focused on the critical role of the electricity and utility sector in the artificial intelligence revolution, particularly regarding data center power demand. Evercore ISI Managing Director Dujesh Chopra stated that data center loads are expected to surge from 25 gigawatts in 2024 to over 80 gigawatts by 2030. The conference discussed key topics including renewable energy generation, grid resilience investments, and smart grid technologies.

Through this conference, Evercore ISI released a report indicating that companies such as Ameren (AEE.US), Centerpoint Energy (CNP.US), Consolidated Edison (ED.US), Portland General Electric (POR.US), and TXNM Energy (TXNM.US) have potential growth opportunities.

Ameren

Ameren is expected to update its MO IRP in February. The company's management emphasized the positive regulatory treatment from the Missouri Public Service Commission, including the approval of asset securitization for the Rush Island plant. On December 3, based on a 9.74% ROE (compared to the required 10.25%) and a 51.80% equity ratio (compared to the required 52%), staff recommended an increase of $398 million in expenses during the electricity review in Missouri.

The company believes that a settlement in this case is likely to be reached, expected in March. Management also discussed a $3.6 billion transmission project approved by the Midcontinent Independent System Operator (MISO) board, of which $1.3 billion is expected to be allocated to the company soon. The company believes that the results of the multi-year rate plan in Illinois align with their expectations, with a 50% equity layer and an 8.72% ROE, which will drive cumulative revenue up by $309 million, slightly below the required $332 million.

Ameren also highlighted the importance of the 250 megawatts of data center demand expected to come online by 2026. The company is actively collaborating with data center developers and hyperscale vendors and plans to share more details during the fourth-quarter earnings call. Additionally, the company noted that it has established strong relationships with legislative and regulatory leaders in Missouri, laying the groundwork for the company's long-term growth. Supportive legislation is expected to create more opportunities for infrastructure investment in the state. Key areas of the Missouri legislative session (running until May) include Right of First Refusal (ROFR) and potential gas generation under PISA.

Centerpoint Energy

Centerpoint Energy is nearing a settlement in the rate case with Houston Electric Company. Evercore ISI has had some good discussions with the company regarding equity ratios and return on equity, so Evercore ISI does not expect any punitive outcomes. They believe this will be a constructive result. Centerpoint Energy may take action as early as January 31 regarding a possible statement. A proposed transaction between the Electric Reliability Council of Texas (ERCOT) and Centerpoint Energy will also transfer its larger temporary emergency generator units (with a $400 million rate base) to the San Antonio area to support the generation needs of CPS Energy (expected in the first quarter) The storm response report/recommendations for December are consistent with the company's self-audit. The company still expects to submit a revised system resilience plan by January 31, 2025, which includes approximately $5 billion in resilience investments for 2026 to 2028 (an increase of $2.5 billion from the original document). The company has reached a settlement regarding the Indiana power and Minnesota gas cases, with a final ruling expected in the first half of this year. The Ohio rate case is expected to have a ruling by the end of the year.

Consolidated Edison

In the fourth quarter results to be announced in February, Consolidated Edison will provide EPS guidance for 2025 and announce its earnings, capital expenditure, and financing plans for the next five years. The mid-term EPS guidance for 2025 will be based on the target long-term growth rate (currently 5-7%). When providing the EPS guidance for 2025, the company will use the currently certified return on equity (ROE) for its various utility companies. A higher capital should be 48% equity financing. The goal is to apply for CECONY power and gas rates by the end of January, as the new rates will take effect in January 2026. In a recent joint proposal, their ongoing O&R rate case reflects a 9.75% ROE for a three-year term, slightly higher than the previous 9.5%, indicating that the company has continued to maintain a premium. Management expects to receive the final commission order in the first quarter. Last December, the company signed a forward sale agreement for 7 million shares at an initial price of $96.66. Consolidated Edison expects this forward sale agreement to be completed by December 31, 2025; however, under certain conditions, Consolidated Edison may choose to complete the forward sale agreement in whole or in part ahead of schedule.

Portland General Electric

In 2024, benefiting from the slowdown in power costs and load growth driven by various industries such as high-tech manufacturing, semiconductors, and data centers, Portland General Electric is performing strongly in the energy market with stable quarterly results. Portland discussed the recent rate case, where the confirmed ROE is 9.34%, below the current and revised required level of 9.5%. The equity ratio is 50%, in line with the company's current regulatory capital structure and its requirements. The company expects the current RFP (final shortlist determining about 50% ownership) to drive EPS within the long-term growth guidance range of 5%-7% (based on adjusted EPS for 2022). Given that more renewable energy and battery projects have come online, Portland General Electric expects capacity constraints to ease. Some risks of power cost fluctuations do exist, but they should also be mitigated through the new Reliability Cost Emergency (RCE) mechanism, which allows for cost-sharing and deferral of certain costs for specific events. Portland General Electric continues to implement wildfire mitigation measures and expects to establish limited liability and possibly an insurance fund through supportive wildfire legislation in 2025. Portland General Electric's total load annual growth of 2% has potential upside TXNM Energy

In the discussions, TXNM emphasized solutions in New Mexico that improve energy efficiency, enhance capital structure, and postpone energy storage agreements to the next rate case. Management highlighted that the no-contest settlement for the 2025 rate case is a significant achievement compared to previous TXNM rate cases. This solution follows a series of other smooth regulatory processes this year, including Grid Mod and the 2026 Resource Plan. TXNM also pointed out significant investment opportunities in Texas, particularly a $750 million transmission project related to West Texas transmission planning/ERCOT Permian Basin reliability studies, with an additional $900 million potential investment if the 345-kV corridor is selected. It is expected that all incremental capital will still be funded by 40%-50% equity, with the company planning to file a lawsuit in Texas in 2025, focusing on increasing its equity layer. Future plans include a $220 million to $250 million 2025 resource plan in New Mexico and potential legislative reforms in Texas. TXNM also released an RFP for 2029 to 2032, which is part of the replacement for the Four Corners (last coal minority equity investment) plan, addressing additional load growth and other factors, with results expected by the end of 2025. Finally, the company is also focused on wildfire mitigation, investing $30 million annually in New Mexico and $82 million in Texas for safety