I like physics. There is a purity to the equations, in how they describe relationships, and an honesty in their limitations. Classical mechanics works beautifully until it does not. When objects become very small or move very fast, quantum mechanics or relativity takes over. The art is knowing when to change.
Utility physics follows the same pattern. Load growth should predict earnings growth. Utilities are designed to serve load, after all. Growing demand means more generation, transmission and distribution, which should mean more rate base. Per-share growth should follow if the utility grows rate base, earns its allowed return and avoids diluting the equity along the way.
Easy math. And it works, up to a point.
In our Utility Compass, the relationship between our load forecasts and market-implied growth is positive, but the slope is shallow and the dispersion wide. Dividend yield is the big lever, more than I expected, explaining 62% of the variation in forward price-to-earnings multiples across our coverage group. The remaining 38% contains differences in cost of equity and expected growth, and load should explain part of it.
Even if load growth has some explanatory power, the trajectory is noisy. AEP’s deck points to a 25.8% load CAGR through 2030, roughly 69 GW. We model 2.0% and 2.6 GW. The market implies 3.2%.
More broadly, our 2030 peak demand estimates run below disclosed guidance for every utility in the group. WEC is the only name where market-implied growth of 2.8% sits below our own estimate of 3.4%. ETR carries the widest growth premium in the group, roughly 4.1 points against our 0.4% load forecast.
Then there is the load that never arrives. We expect behind-the-meter generation to serve 41% of incremental data center load through 2030, roughly 30 GW of new gas capacity built outside the rate base. Of PJM’s 11.8 GW high-confidence large-load pipeline, 58% is expected to go behind the meter. MISO’s 11.6 GW stays 78% grid-connected, but its proposal would have those customers pay the attributed upgrade costs upfront. One market loses the load. The other keeps it and gives away the return.
Load growth is murky for utilities and investors alike. Converting it into earnings runs into a new limit: who funds and owns the build.
Comments, questions or things I missed? Send me a note (or hit reply) - I would love to hear from you. Thanks for reading!
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