US Grid’s $1 Trillion Problem Could Equal a $1 Billion Payout for Power CEOs

Summary

Stock-based pay grants for top 15 utility CEOs totals $993 million
Grid upgrades could surpass $1 trillion in the next decade, analysts said
U.S. residential customers faced 13.4 million disconnections in 2024 – EIA data

(Reuters) – The U.S. electric grid’s mounting reliability problems have contributed to higher power bills for millions of homes and businesses. Fixing it could offer a massive payout opportunity for the executives charged with that task.

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CEOs of the 15 largest U.S. power companies are sitting on nearly $1 billion in ‌stock-based pay, according to a Reuters analysis of regulatory disclosures, value that is poised to keep rising as their firms invest heavily to fix America’s electrical grid.

That’s because the value of a publicly traded utility, unlike other sectors, is directly tied to its capital spending. The more companies invest in regulator-approved infrastructure, the larger the asset base on which they earn guaranteed regulated returns. Spending on upgrading the creaky U.S. grid could potentially surpass $1 trillion over the next decade, according to industry analysts.

“Earnings and cash flows increase when the utility invests capital, and the regulator allows an agreed rate of return,” Fidelity’s $4 billion Select Utilities Portfolio said in a recent update for investors.

The S&P 500 ⁠Utilities index is up more than 30% since the start of 2024 as power demand has boomed, largely due to the needs of data centers running artificial intelligence applications.

That demand has spurred a wave of consolidation, including NextEra Energy’s May decision to buy Dominion Energy in a $67 billion deal that will create the nation’s third-largest energy company.

Meanwhile, monthly electricity rates are up 10% on average across the country this year, according to government data. Consumer advocates say the pay packages for utility CEOs are distasteful as residential power bills rise.

“America’s energy affordability crisis is made worse by the misalignment of utility profits and customers’ high energy burdens,” said Tyson Slocum, director of the energy program for Public Citizen.

“Hardworking families are picking up the bill while utility CEOs and their investors are making guaranteed profits,” he said.

BIG PAYOUTS

CEOs of the top 15 U.S. utility companies listed on the S&P 500 Utilities Index by market value are sitting on $993 million in combined stock-based pay, according to a Reuters examination of company disclosures, with the average payout estimated at $66 million.

James Burke at Vistra tops the list with more than $100 ‌million in ⁠unrealized stock-based pay, followed by CEOs at Constellation, NextEra and Entergy. Those packages need to vest before executives can cash out.

Executives at smaller companies are also in line for big paydays, including Talen Energy, whose power plants are crucial to the nation’s largest regional grid, PJM Interconnection.

Nearly 900,000 shares of Talen CEO Mark McFarland’s restricted stock grants vested last month, putting him in line for a $300 million payday if he chose to sell now, according to Talen disclosures.

Talen did not return a message seeking comment.

NEXTERA’S MEGADEAL

The thin buffer between the capacity and demand on PJM is expected to drive big profits for utilities ⁠operating in that region, which serves 67 million customers in 13 states across the South, Midwest and Mid-Atlantic.

Talen noted in May that more frequent scarcity events in PJM tied to peak load conditions and constrained system capacity will further benefit the economics of gas-fired generation.

NextEra’s decision to buy Dominion brings that company into PJM’s region. Dominion is the top utility serving the world’s largest collection of data centers in ⁠northern Virginia.

NextEra CEO John Ketchum’s restricted stock and option grants are worth more than $100 million, according to NextEra pay disclosures. The company did not return messages seeking comment.

Companies, including Exelon and Dominion, noted they provide relief to customers struggling to pay bills.

“The vast majority of our CEO’s pay is not recovered from customers, and the portion that is tied to performance reinforces ⁠reliable service and cost control,” an Exelon spokesperson told Reuters.

Residential electricity customers in the U.S. experienced approximately 13.4 million service disconnections in 2024 due to unpaid bills, according to an inaugural Energy Information Administration report released in April.

“Keeping the lights on for everyday Americans should be part of the compensation calculation for CEOs who have the power to tackle this problem, not just skyrocketing returns for investors,” said Logan Burke, executive director of the Alliance for Affordable Energy.

Reporting By Tim McLaughlin; editing by David Gaffen