This trip came at a pivotal moment for the sector. Utilities are entering what management teams describe as a once-in-a-generation investment cycle, driven overwhelmingly by data centre and other large-load demand. At the same time, the November 2026 midterms have made data centre development and energy affordability live electoral issues in a number of states, against a backdrop of an energy shock from the Iran war, a Fed that has resumed hiking and 10-year yields above 5%. What stood out was that the growth is real, largely contracted and still building, but dispersion between companies is widening as politics, regulation and financing increasingly determine who converts that growth into earnings.
This piece summarises the key messages from the trip and how they shape our positioning across the sector.
This is the abridged version of the article, which can be read in full here.
Key takeaways
Politics is a significant catalyst, and affordability is the battleground. The Iran war has added an energy shock to an already heated affordability debate, and the cost of living is now the defining issue of the midterms. Utility bills are among the few household costs politicians can directly influence, which makes them a target.
The macro backdrop is tougher, but largely priced in. Higher rates, energy-led inflation and rising equipment costs are real headwinds, but they are offset by the strongest demand growth in decades. After a sharp de-rating, we believe much of the interest rate risk is now priced in.
Load growth is close to universal. Large-load and data centre demand is driving investment at almost every utility we met. Signed contracts already underpin double-digit rate base growth, with further upside not yet in company plans or our forecasts.
Data centres are now a political story. Companies are leading with local benefits, shifting bill increases onto large-load customers and hardening contract protections. Most expect political rhetoric to ease after November, but public objection will persist as development ramps up.
Customer protection is the licence to grow, financing the next test. Dedicated tariffs, long-dated take-or-pay contracts and termination payments are becoming standard. The bigger risk is financing: the gap between rate base growth and EPS growth is widening as equity needs rise.
Regulation is broadly constructive, with pockets of risk. Most rate cases are tracking towards reasonable settlements, but Indiana, Texas’s Batch-zero review and California’s stalled wildfire legislation show how quickly politics can intervene. Stock selection is critical.
Gas infrastructure is in a sweet spot. Power generation and LNG export demand are driving strong, long-dated, largely contracted midstream growth, while capital returns rise as growth capex matures.
Politics – a significant catalyst
Domestic and global politics will remain a significant catalyst, positive and negative, for US infrastructure over the next 12 months. State-level politics dominated this trip and are covered in the infrastructure themes below; this section frames the national picture.
Iran war – the largest energy shock since Ukraine
The conflict that began with the US–Israeli strikes on 28 February 2026 has been the largest external shock to energy markets since Russia invaded Ukraine. Oil flows through the Strait of Hormuz remain about 30% below pre-war levels, and Brent stood at US$104/bbl on 9 October. The path from here matters more than the shock itself: a durable de-escalation would ease oil prices, inflation and long-end yields, while prolonged disruption would keep energy-led inflation elevated and push the Fed to tighten further, the main risk to our view that rate risk is now largely priced in.
Affordability – the defining issue of the midterms
The cost of living has become the issue around which both parties are framing their campaigns, with 76% of Americans naming it their biggest economic concern in May, up from 58% a year earlier. Energy is now the main driver of inflation, with gasoline up 27.4% in the year to August. Household electricity prices rose a more modest 3.8%, in line with headline inflation. Even so, utility bills are among the few household costs elected officials can directly influence, and increasingly do, which makes them a political target in several state elections. Intermittently
Presidential approval at a low
President Trump’s net approval has fallen to around -27 points, from +5 in January 2025. Many Republican state-level candidates are distancing themselves from the President, including on support for AI and data centres, the key driver of utility load growth. We have addressed the implications of potential midterm outcomes for our universe in a separate News & Views.
Economics – tougher backdrop, strong demand
The economic backdrop is more challenging than a year ago, but the investment case for US infrastructure remains strong.
Rates – higher for longer, and a steeper curve. On 16 September the Fed raised rates by 25bp to 3.75–4.00%, its first increase since July 2023, with further hikes priced into 2027. The 10-year Treasury yield breached 5% in mid-September for the first time since 2007 and stood at 5.24% on 9 October. Utilities, which hit an all-time high in late February, have since underperformed the S&P 500 by nearly 30%. After that de-rating, we believe much of the interest rate risk is now priced in.
Inflation – a K-shaped squeeze. Unemployment of 4.2% and core inflation of 2.4% look resilient, but spending is being carried by higher-income households, while lower-income households face falling real incomes and rising reliance on credit. Tariffs on steel, aluminium and copper are also adding lasting cost to grid equipment, on top of a multi-year gas turbine backlog. This is why utilities are so focused on minimising bills for residential and smaller commercial customers.
AI capex – durable, but more leveraged. Amazon, Microsoft, Alphabet and Meta are guiding to combined 2026 capex of around US$720–745 billion, up from about US$410 billion in 2025. Overbuild risk is rising and financing is shifting towards debt and structured capital, making the cycle more sensitive to rates and to any disappointment in AI revenue. We believe the super cycle still has a way to go. In the unlikely ‘doomsday’ scenario of a sector-wide AI downturn, utility growth, earnings and probably valuations would need to be moderated.
Infrastructure – strong growth, managing affordability
Load growth – a once-in-a-generation investment cycle
Load growth expectations are materially exceeding what was contemplated only a year or two ago, and pipelines are now large relative to existing systems. Pinnacle West has 20 GW of uncommitted interconnection applications against 2025 peak demand of 8.6 GW; Southern Co’s large-load pipeline grew by 6 GW to 17 GW in a single quarter; and CenterPoint’s 14 GW Texas pipeline compares with peak demand of around 22 GW in Houston.
Signed contracts are already translating into double-digit rate base growth, against the historical mid to high single digits. AEP flagged c.11% rate base growth over 2025–2030, Alliant 12% (with a further 2–4 GW in final negotiation), WEC 11.3% and IDACORP more than 16%, with upside not yet in plans. Not all of the pipeline will convert, and companies were disciplined: capacity rather than demand is the binding constraint, and management teams will only commit capital against firm contracts. 4D does not include investment in its forecasts until it is contracted or has reached FID, which limits downside while retaining the upside.
Texas provided the clearest example of politics meeting the interconnection queue. ERCOT’s Batch-zero process placed ~192 GW of large-load projects into its first cluster study, against all-time peak demand of 91 GW, prompting Governor Abbott to order a review ahead of a tighter-than-usual election. We do not value the upside from these interconnections until it is near certain.
The politics of load – social licence and affordability
Data centre development has become a contested issue in state elections. Few candidates seek to block growth outright, but oversight and how communities share in the benefits are points of conflict, and public sentiment is deteriorating: 76% of Wisconsin voters now believe the costs of data centres outweigh the benefits. Companies are responding by leading with local tax benefits, rebutting concerns on water and jobs, and improving transparency, but local tensions persist.
Affordability is the dominant electoral lever. In Indiana, the governor has replaced utility commissioners and an affordability-focused review puts allowed returns and investment trackers at risk. Utilities are responding by allocating bill increases disproportionately to large-load customers: in Arizona, Pinnacle West’s rate case seeks a 14% overall revenue increase, but around 45% for data centres. We favour states where affordability is less of a headwind, such as Texas, Colorado and Wisconsin, and companies with low near-term regulatory event risk, such as Southern Co, Alliant, Sempra and CenterPoint. Most companies see the November midterms as the point at which political rhetoric should ease.
Customer protection and financing – the licence to grow
Utilities are working to ensure ordinary customers never fund investment for large loads that fail to materialise. Dedicated large-load tariffs, long-dated take-or-pay contracts matched to asset lives, and termination payments backed by credit support are becoming standard. IDACORP stood out, with termination payments based on the NPV of the full contract. If a data centre walked away, the utility would seek a termination payment, repurpose the site or use the capacity to replace ageing plant. We see these as strong protections; our key concern remains a sector-wide ‘doomsday’ credit event, which we see as low probability.
The bigger company-specific risk is financing. The scale of investment is widening the gap between rate base growth and EPS growth through equity dilution and regulatory lag. Companies are closing it with lower payout ratios (which could disappoint yield investors), hybrids, asset recycling, partnership capital and structural fixes, such as Pinnacle West’s move to a formula rate plan and Portland General’s proposed holding company. We were encouraged by the range of options but see this as an ongoing challenge and a growing risk to earnings.
Regulation – broadly constructive, with pockets of risk
Most rate cases are tracking towards reasonable settlements, with modest compression in allowed returns as rates rise. Companies are more focused on approval of investment growth, which supports absolute earnings, and some, including Southern Co, are earning above their allowed returns. Exceptions include operational penalties, state affordability reviews and regulator pressure for evidence of the benefits of rider mechanisms. With state outcomes driving such divergence, stock selection is critical.
California wildfire liability remains a distinct, company-specific risk. Hopes for legislation shifting liability away from utilities were not realised after talks broke down over limits on insurers’ claims, and affected share prices fell sharply. 4D was not exposed, having chosen to wait for a definitive resolution. We expect more states to consider their own legislation as wildfire incidence increases.
Gas infrastructure – power and LNG demand driving growth
Data centre power demand and LNG export growth are the core drivers of the midstream outlook. Kinder Morgan’s Southeast network alone could support billions of dollars of new laterals, around 100bp of IRR upside to our base case. Companies are securing unusually long commitments with high-quality counterparties, such as Targa’s 20-year agreement with Exxon, and capital returns are rising as growth capex matures. The Iran conflict is a near-term tailwind that management teams were careful not to treat as structural; we see it as a 2026 earnings boost only.
M&A and water – scale and scarcity
M&A is being pursued as a route to scale, led by the proposed NextEra–Dominion merger, with regulatory approval and the customer benefits needed to secure it the key hurdles. Our investment theses do not depend on pending mergers being approved. Others, notably Algonquin, are moving the other way, simplifying diversified portfolios to gain scale in core markets, which we view positively. In water, consolidation remains the key growth theme and listed pure-plays may enjoy scarcity value as investors seek diversification away from data centre exposure. H2O America’s Quadvest acquisition is a strong deal, but we believe it is fully valued and the associated Texas rate case carries underappreciated risk.
Conclusions – reaffirming US conviction
This trip reinforced our conviction in the generational US energy infrastructure opportunity created by load growth and the tech companies driving AI. The investment cycle driven by data centres, electrification and reshoring is real, largely contracted and, for most companies, still growing. It is also increasingly a political story: affordability, social licence and the midterms will shape regulatory outcomes over the next 12 to 18 months, and the dispersion between companies is widening as a result. Higher rates are largely priced in after the sector’s de-rating, and a post-election easing of political rhetoric and de-escalation in the Middle East would be significant catalysts.
We remain focused on companies with stable earnings, strong customer protections, credible financing pathways and management teams managing the political backdrop as carefully as the growth opportunity itself. Gas infrastructure remains a clear beneficiary, while we continue to see California wildfire liability as a distinct, company-specific risk.
As always, we maintain a diversified portfolio of high-quality infrastructure names globally.
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The content contained in this article represents the opinions of the authors. The authors may hold either long or short positions in securities of various companies discussed in the article. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely as an avenue for the authors to express their personal views on investing and for the entertainment of the reader.