North American Power & Utilities Utilities rewired How the sector works, earns and grows Aug 21

North American Power & Utilities Utilities rewired: How the sector works, earns and grows Primer

How the utility sector works and why it matters 21 August 2026

Utilities own and operate the infrastructure used to deliver electricity, natural gas and Equity water to customers. Although these services share a regulated, capital-intensive North America foundation, the sector includes different ownership structures, business models, Utilities regulatory frameworks and sources of earnings. This primer explains how utilities Ross Fowler, CFA operate, invest and recover their costs; how regulation converts infrastructure Research Analyst BofAS investment into earnings; and how business mix, demand growth, customer affordability, financing and valuation shape the investment case. F. Paul Cole How infrastructure investment becomes regulated EPS Research Analyst BofAS Most utilities operate as local monopolies in exchange for regulatory oversight of service, rates, investment and returns. Utilities invest in necessary infrastructure, seek Rinny Singh approval to include eligible investment in rate base, recover costs through customer Research Analyst rates and earn an authorized return. The central questions for investors are how much a BofAS utility can invest, how quickly that investment is reflected in rates and whether the company can earn close to its allowed return. Nicolas Woods Research Analyst BofAS Why business mix shapes risk and valuation Utilities are not a single business model. Companies may own regulated electric, natural gas or water systems, competitive generation, contracted infrastructure or a David Rold, CFA Research Analyst combination of businesses. Asset mix, jurisdiction and market exposure determine BofAS earnings visibility, commodity sensitivity, capital requirements and valuation. Understanding what a utility owns, where it operates and how each business earns is the starting point for company analysis.

What is driving the next investment cycle Electric demand is accelerating after an extended period of limited growth, supported by Abbreviations at the end of the data centers, manufacturing, electrification and economic development. Utilities must report also replace aging infrastructure, expand transmission and distribution systems, add dependable generation and improve resilience. These needs are supporting larger capital programs and longer rate base growth runways across much of the sector.

Why capital spending alone does not create value Capital spending supports earnings growth only when investment is necessary, recoverable, affordable and efficiently financed. Rising customer bills can increase regulatory and political resistance, while larger funding requirements can pressure credit metrics and increase equity needs. The strongest investment cases combine credible demand growth, constructive regulation, timely recovery, manageable customer bills and a financing plan that protects balance sheet strength.

What investors need to understand This report provides a framework for evaluating electric, natural gas and water utilities, including rate base growth, regulatory recovery, load growth, power markets, grid investment, affordability, financing and valuation. It also examines the topical debates reshaping the sector, including data centers, and resource adequacy.

BofA Securities does and seeks to do business with issuers covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Refer to important disclosures on page 50 to 51.

Contents Utility Sector Primer for today’s investor 3 What is a utility: 3 Utility ownership and industry scale 5 Utility business models/company types 6 Utility Operations and Planning: 8 The Regulated Utility Compact: 10 How regulation works 12 Electric utility fundamentals 16 Data centers and large-load development 19 Rate affordability and political response 23 Transmission/distribution/grid investment 25 Power plant and dispatch economics 29 Power markets, capacity and…