The Future of Electric Utilities: Regulatory Challenges and Rising Costs Spark Industry Debate

What exactly are utilities, and what role should they play in modern society? Elected officials, regulators, utility executives, and scholars are revisiting the so-called ‘regulatory compact’, a framework that has shaped the electric utility industry for decades—or, according to some, over a century.

This past week, two pivotal events underscored the moment of reckoning facing electric utilities.

Pennsylvania Governor Challenges the 20th-Century Utility Model

In Pennsylvania, Governor Josh Shapiro sent a letter to the state’s utilities—including those providing water, gas, and electricity—declaring that “the 20th-century utility model is broken.” Shapiro cited “markedly higher utility costs” and “rising utility bills” as evidence of systemic failures. He attributed part of the problem to “your policy and fiscal decisions, including the excessive rate requests several utilities have sought in recent years.”

Berkshire Hathaway CEO Warns of a ‘Precipice’ for Utilities

Over the weekend, at the Berkshire Hathaway annual meeting, newly appointed CEO Greg Abel—who rose through the company’s energy division—raised concerns about the sustainability of the utility business model. “What’s the challenge? It’s the regulatory compact,” Abel stated during the meeting.

Abel explained Berkshire Hathaway’s approach to utilities:

“We leave your capital, our owner's capital, Berkshire’s capital, in these businesses, and often a portion of the earnings that they generate, we may reinvest back into those businesses. And for that, we get a very specific set of returns. And, over the long run, it’s been a very balanced and fair return.”

“That model has worked very good for a number of years,”

Abel highlighted a growing dilemma: utilities face high investment needs, including replacing aging infrastructure, while state regulators and governors push for lower rates.

“If we don’t see that balance, we don’t deploy our capital back into those businesses or into those utilities.”

PacifiCorp Faces Wildfire Liability and Policy Pressures

Berkshire Hathaway’s subsidiary PacifiCorp, which serves six Western states, has encountered significant challenges, particularly from wildfire liability claims. In Oregon, high legal claims stemming from wildfires have pressured the company. Earlier this year, PacifiCorp agreed to sell nearly $2 billion worth of assets in Washington state, citing “diverging policies among the six states PacifiCorp serves [that] have created extraordinary pressure, affecting the company’s ability to meet demand reliably and at the lowest cost to customers.”

The utility also faced threats of credit downgrades due to large jury awards from wildfire claims in Oregon. Washington’s aggressive decarbonization timeline and regulatory mechanisms have further strained PacifiCorp, which argues that these policies would increase costs for customers in other states.

East vs. West: Diverging Challenges for Utilities

In the Western U.S., high electricity costs are largely driven by wildfire-related damages, which pose existential threats to utilities. The bankruptcy of PG&E in California, attributed to wildfire liability, serves as a stark example. Meanwhile, on the East Coast, rising electricity costs are fueling public frustration, though the underlying causes differ from those in the West.

Americans across the country are increasingly angry about electricity costs, while utilities argue that they are being asked to meet unrealistic demands to operate profitably under the current system.