Matt Stoller delivers a searing indictment of the American utility sector, challenging the comforting narrative that soaring electricity bills are simply the cost of a green transition. He argues that the real culprit isn't climate change or data centers, but a regulatory structure that financially rewards utilities for wasting money rather than building efficient infrastructure. This is not just an economic critique; it is an explanation for why voters are furious, why the grid is failing, and why the industry's latest $120 billion merger is a threat to consumers, not a solution.
The Illusion of Investment
Stoller opens by dismantling the standard defense offered by investor-owned utilities: that price hikes are necessary to fund grid reliability and the energy transition. He points out a glaring contradiction in their logic. "Investor-owned utilities, often consolidated into increasingly huge holding companies, have been hiking for years, which presumably should be bringing in a gusher of cash to fix the problems they observe with extreme weather and reliability," Stoller writes. Yet, the grid remains fragile, and blackouts are increasing. He asks the question that haunts every ratepayer: "Where's all the f&$*#ing money going?"
The author's evidence is stark. Despite a five-fold increase in spending on the U.S. transmission system over the last two decades, the grid is less reliable than before. Stoller highlights a chart by expert witness Mark Ellis which reveals that "more financial investment is not resulting in more actual investment in the grid." This finding upends the assumption that capital expenditure automatically translates to better service. The argument is particularly potent because it reframes the crisis not as a lack of resources, but as a misallocation of them driven by perverse incentives.
Critics might argue that the grid faces unprecedented physical challenges from extreme weather and the intermittent nature of renewables, making any comparison to past spending levels misleading. However, Stoller counters this by noting that publicly owned utilities, which operate under different constraints, are not raising prices at the same frenetic pace as their Wall Street-backed counterparts. This suggests the problem is structural, not environmental.
The Mechanics of Waste
The core of Stoller's analysis lies in the mechanics of rate-of-return regulation, a system dating back to the early 20th century. He explains that utilities do not profit by being efficient; in fact, efficiency hurts their bottom line. "Regulated electric and gas utilities are not like other businesses, they don't profit by delivering low cost goods and selling at a markup for what customers will pay," he notes. Instead, their profit is tied to the amount of capital they deploy. Every dollar spent on a new pole or wire is reimbursed at cost, plus a guaranteed return on equity.
Stoller points out the absurdity of the current rates. "The return on equity guaranteed to most investor-owned utilities is between 9-11%. Right now the best savings rate today on the site Nerdwallet, what you can get for putting your money in a bank, is 4.03%." This creates a situation where utilities are essentially banks with a guaranteed return, incentivized to spend recklessly. He draws a historical parallel to the Averch-Johnson effect, a phenomenon where regulated monopolies over-invest in capital to maximize profits, a dynamic that has been exacerbated since the 1970s.
This incentive structure explains why utilities avoid building high-voltage interstate transmission lines, which would be cheaper and more efficient, in favor of small, local "supplemental" projects. "They are truly paid to fritter away money, to gold-plate and waste," Stoller writes. The result is a grid that is bloated with expensive, redundant local infrastructure while lacking the backbone needed to move power from where it is generated to where it is needed. He notes that China has built 80 times more high-voltage transmission than the U.S. in the last decade, leaving America with a fragmented and expensive system.
Utilities are willing to waste $1000 to send an extra $60 to shareholders.
The NextEra-Dominion Merger
Stoller turns his attention to the industry's latest mega-merger: NextEra Energy's proposed $120 billion acquisition of Dominion Energy. While the companies claim the deal will lower costs and accelerate the deployment of infrastructure for data centers, Stoller sees a different motive. "The real rationale for the deal is entirely about how we price utility services," he argues. He points to the financial projections: while Dominion projected 5-7% earnings growth, NextEra claims the merger will boost that to 9%.
The author suggests that NextEra intends to apply its aggressive capital deployment model to Dominion's assets, effectively raising prices to meet higher profit targets. "They are bragging about how much regulatory capital they have, and the 'constructive regulatory environments,' aka captured regulators," Stoller writes, highlighting the euphemisms used in investor presentations. This merger, he warns, is not about efficiency; it is about consolidating power in a regulatory system that rewards over-spending.
A counterargument worth considering is that the sheer scale of the merger might allow for economies of scale that could eventually lower costs for consumers. However, Stoller's analysis of the regulatory framework suggests that in a rate-of-return system, economies of scale often lead to higher total spending rather than lower rates, as the utility seeks to maximize its rate base. The historical context of the Public Utility Holding Company Act of 1935, which was designed to break up such complex structures, looms large here, suggesting a regression to the very problems that legislation sought to solve.
Bottom Line
Matt Stoller's piece is a masterclass in connecting regulatory theory to the daily frustration of high utility bills, exposing a system that rewards waste over efficiency. Its greatest strength is the clear demonstration that the grid's failures are not due to a lack of investment, but a misdirection of it driven by Wall Street incentives. The argument's vulnerability lies in the political difficulty of overturning a century-old regulatory model, but the evidence it presents is impossible to ignore. As the NextEra-Dominion deal moves forward, this analysis serves as a crucial warning: without structural reform, the merger will likely mean higher prices and a grid that remains just as broken.