For most of my investing career, Wall Street has looked at utilities as quasi-bonds, whose main attraction has been the dividend yield. This suggests they’re attractive if interest rates are falling and problematic if they’re rising. At the current weighting at 2.3% of the S&P 500 total market cap, they’re not top of mind for professional portfolio managers, whose two basic strategies are either to index-weight them or have none at all. The latter has been my preference, even during the 1980s, when rates were falling sharply from early-decade highs.

Also, as I’ve outlined in prior posts, because demand for utility output has been relatively stable for a long time, governments have had no issue with reducing allowable returns. In itself, this doesn’t reduce availability and it keeps voters happy. The predictable response of utilities to this has been to cut back on capex and maintenance, allowing plant and equipment to deteriorate.

For electric utilities, now dealing with creaky infrastructure + sharp increases in demand from AI and electric vehicles, this situation is beginning to change in their favor. The only way they’ll get the money for the new capital investment that today’s energy situation demands is if utility commissions raise the allowable return on assets that they can earn.

Two implications, if this is correct:

–allowable returns will move upward, although the timing and extent of government action on this is will require case-by-case study. The place I’d start to look is with my local electricity provider. A visit to the website and call to the investor relations or customer relations people may be revealing–either a goldmine of information or nothing at all

–companies will up their spending on new plant and equipment. The extent is probably large, but the timing is unclear. Ultimately, though, a wide range of equipment makers are likely the big beneficiaries. This is the way I’m participating, and through an ETF. No chance of a huge payoff by picking the winningest utility, but, I think, the best chance for me of a market-beating return, given my limited knowledge. This is basically the idea that the biggest winners from the 1848 Gold Rush were Levi Strauss and shovel makers.