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High winds down power lines. But high waters flood substations — and those are much harder to fix.

There’s a familiar script when it comes to hurricanes: The high winds snap tree branches and even tree trunks and whip around anything else that’s light enough or not bolted down — including power lines and distribution poles. While this type of damage can lead to large-scale outages, it’s also relatively straightforward to fix. In many cases the power comes back on relatively quickly, more like days rather than weeks or months.
But when it comes to flooding, especially in areas that do not regularly deal with big storms, the damage can be more severe, long-lasting, and difficult to repair. This is largely because what’s at risk in these scenarios is not power lines but substations. These messes of transmission and distribution lines that channel high voltage power to homes and businesses are vulnerable to rising water, and repairs can’t begin until the floodwaters recede. Often they have to be replaced entirely, which is expensive and can lead to further delays as there’s a nationwide shortage of transformers. Just one substation can support thousands of homes — a single point of failure that, when it floods, takes all its customers down with it.
Duke Energy, whose grid in the Carolinas was pummeled by Hurricane Helene, has said the damage to its system encompasses “submerged substations, thousands of downed utility poles, and downed transmission towers,” and noted that much of the affected area is “inaccessible due to mudslides, flooding and blocked roads, limiting the ability to assess and begin repairing damages.” In an update published Saturday, it stated that while more than 2 million customers had seen their power restored, about 250,000 customers across North and South Carolina remained without electricity more than a week after the storm.
Workers are “encountering more severe damage on a larger scale than we’ve ever experienced,” Duke Energy storm director Jason Hollifield said in a statement. (Duke didn’t respond to my request for comment.) One Duke employee told the local television station in Asheville, North Carolina, which saw more than three months’ worth of rain fall over three days, that a local substation would have to be completely rebuilt, a process that could take months. In Western North Carolina, the area’s Representative Chuck Edwards has estimated that 117,000 customers still lack electricity, and that while some of them will likely get it back by Sunday, others “whose properties are inaccessible or not able to receive power may be without electricity for an extended period of time as Duke Energy works to rebuild critical infrastructure.”
To prepare for the onrushing Hurricane Milton, Duke is staging thousands of “line technicians, vegetation workers, damage assessors and support personnel” in Florida, the company said. The same problem remains, however: Line technicians will not prevent substations from flooding.
While the exact effect of climate change on hurricanes and other storm categories is an area of intense debate among climate scientists and meteorologists, there’s a rough consensus that warming will cause the storms to be wetter. That means utilities will have to update their old disaster response playbooks, or else prolonged outages when an especially wet storm arrives over a flood plain.
In most hurricanes, utilities are able to pre-position workers to restore power quickly, working on knocked down poles and wires, explained Jordan Kern, an assistant professor engineering at North Carolina State University. “When trees fall on distribution lines, those are, in normal situations, easy to repair,” he told me. But, Kern said, “If the substations are flooded, you can’t do anything until the flood waters go down. They can be without power for a long time.”
Wetter hurricanes will likely mean more severe and less predictable flooding happening far away from the coasts, bringing with it risks that utilities and local governments may be less prepared to face, with costs that will ultimately be born by anyone who pays for electricity, as expensive repairs and hardening of electrical infrastructure will likely be born by ratepayers.
“Rates will necessarily rise” to deal with the higher costs of adaptation and repairing infrastructure more complex than a wooden pole, Tyler Norris, a PhD student at Duke University’s Nicholas School of the Environment, told me while driving towards Asheville to help out family impacted by the storm.
While Helene has been an especially damaging storm, the risks of wetter storms and inland flooding away from the coastal areas that are prepared for frequent hurricanes have become more apparent in recent years. While Hurricane Irene in 2011 made landfall on Long Island, its most devastating effects were felt inland due to heavy rains, especially in Vermont.
North Carolina in particular has seen a rash of nasty hurricanes in the past 10 years or so, giving Duke ample recent experience with big storms — and some indication of what a warming world could bring.
During 2018’s Hurricane Florence, which knocked out power for around a million Duke customers, “at least 10 substations required de-energization due to flooding or flood risk where heavy rainfall and resulting inland flooding,” according to a 2022 Duke climate resiliency report. The report was meant to look at the effects of climate change to the Duke system by 2050 under two emissions scenarios outlined by the Intergovernmental Panel on Climate Change, one assuming emissions start falling by 2040, the other assuming continued (some might say unrealistically) high emissions.
Under the extreme scenario, the “overall vulnerability priority of Duke Energy substations to climate-driven changes in precipitation and inland flooding is high,” the report said, while under the “middle of the road” projection, “transmission infrastructure faces a medium priority vulnerability.” In both cases, however, “without adaptation planning … substations are at the highest potential risk, with extreme heat and flooding being the greatest concerns for existing assets.”
Duke said at the time that it had “implemented permanent flood protection measures at new substations located in flood plains and substations with a prior history of flooding.” For its existing fleet, priority was being given to those substations considered particularly “at-risk,” however the flood protection plan had “not yet been universally implemented at all existing substations in the flood plain.”
“What they characterized there falls significantly short of what we just saw,” Norris said. While he noted that Duke had listed risk to substations from inland flooding as high (albeit only under the extreme scenario), it had listed the risk to the distribution of power, i.e. poles and wires, as “low” under both scenarios. “There’s been a dramatic misestimate of risk here,” Norris said.
For Duke customers, especially in the more isolated parts of Western North Carolina, they may simply have to wait for workers and parts to arrive. Repairs that could normally happen quickly will likely happen slowly as workers struggle to reach areas whose roads have been washed away. Duke said that it’s now focusing on restoring the “backbone” of the transmission and distribution system, and then is moving on to restoring fallen poles in less densely populated areas.
And it will likely happen again. Kern noted that inland flooding especially is notoriously hard to predict compared to coastal flooding from hurricanes. “Flooding is so idiosyncratic,” he said. “It’s hard for anyone to predict how flooding will affect a region. Let alone electric utilities.”
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Members of the nation’s largest grid couldn’t agree on a recommendation for how to deal with the surge of incoming demand.
The members of PJM Interconnection, the country’s largest electricity market, held an advisory vote Wednesday to help decide how the grid operator should handle the tidal wave of incoming demand from data centers. Twelve proposals were put forward by data center companies, transmission companies, power companies, utilities, state legislators, advocates, PJM’s market monitor, and PJM itself.
None of them passed.
“There was no winner here,” PJM chief executive Manu Asthana told the meeting following the announcement of the vote tallies. There was, however, “a lot of information in these votes,” he added. “We’re going to study them closely.”
The PJM board was always going to make the final decision on what it would submit to federal regulators, and will try to get something to the Federal Energy Regulatory Commission by the end of the year, Asthana said — just before he plans to step down as CEO.
“PJM opened this conversation about the integration of large loads and greatly appreciates our stakeholders for their contributions to this effort. The stakeholder process produced many thoughtful proposals, some of which were introduced late in the process and require additional development,” a PJM spokesperson said in a statement. “This vote is advisory to PJM’s independent Board. The Board can and does expect to act on large load additions to the system and will make its decision known in the next few weeks.”
The surge in data center development — actual and planned — has thrown the 13-state PJM Interconnection into a crisis, with utility bills rising across the network due to the billions of dollars in payments required to cover the additional costs.
Those rising bills have led to cries of frustration from across the PJM member states — and from inside the house.
“The current supply of capacity in PJM is not adequate to meet the demand from large data center loads and will not be adequate in the foreseeable future,” PJM’s independent market monitor wrote in a memo earlier this month. “Customers are already bearing billions of dollars in higher costs as a direct result of existing and forecast data center load,” it said in a quarterly report released just a few days letter, pegging the added charges to ensure that generators will be available in times of grid stress due to data center development at over $16 billion.
PJM’s initial proposal to deal with the data center swell would have created a category for new large sources of demand on the system to interconnect without the backing of capacity; in return, they’d agree to have their power supply curtailed when demand got too high. The proposal provoked outrage from just about everyone involved in PJM, including data center developers and analysts who were open to flexibility in general, who said that the grid operator was overstepping its responsibilities.
PJM’s subsequent proposal would allow for voluntary participation in a curtailment program, but was lambasted by environmental groups like Evergreen Collaborative for not having “any semblance of ambition.” PJM’s own market monitor said that voluntary schemes to curtail power “are not equivalent to new generation,” and that instead data centers should “be required to bring their own new generation” — essentially to match their own demand with new supply.
A coalition of environmental groups, including the Natural Resources Defence Council and state legislators in PJM, said in their proposal that data centers should be required to bring their own capacity — crucially counting demand response (being paid to curtail power) as a source of capacity.
“The growth of data centers is colliding with the reality of the power grid,” Tom Rutigliano, who works on grid issues for the Natural Resources Defense Council, said in a statement. “PJM members weren’t able to see past their commercial interests and solve a critical reliability threat. Now the board will need to stand up and make some hard decisions.”
Those decisions will come without any consensus from members about what to do next.
“Just because none of these passed doesn’t mean that the board will not act,” David Mills, the chairman of PJM’s board of managers, said at the conclusion of the meeting. “We will make our best efforts to put something together that will address the issues.”
California energy companies are asking for permission to take in more revenue. Consumer advocates are having none of it.
There’s a seemingly obvious solution to expensive electricity bills: Cut utility profits.
Investor-owned utilities have to deliver profits to their shareholders to be able to raise capital for grid projects. That profit comes in the form of a markup you and I pay on our electricity bills. State regulators decide how much that mark-up is. What if they made it lower?
A growing body of evidence suggests they should at least consider it. In principle, the rate of return on equity, or ROE, that regulators allow utilities to charge should reflect the risk that equity investors are taking by putting their money in those utilities, but that relationship seems to have gotten out of whack. Among the first to draw attention to the issue was a 2019 paper by Carnegie Mellon researchers which found that since the 1990s, the average “risk premium” exhibited by utility ROEs as compared to relatively risk-free U.S. Treasury bonds has grown from 3% to nearly 8%.
“An error or bias of merely one percentage point in the allowed return would imply tens of billions of dollars in additional cost for ratepayers in the form of higher retail power prices,” the authors wrote.
Subsequent research reproduced and built on those findings, showing that a generous ROE creates a perverse incentive for utilities to increase their capital investments, leading to excess costs for consumers of $3 billion to $11 billion per year. Now, the ex-chief economist of a major U.S. utility company, Mark Ellis, is putting his own analysis out there, arguing that unreasonably high ROEs are costing U.S. energy customers $50 billion per year, or over $300 per household.
Not only does this hurt consumers, it also makes the energy transition more expensive and less politically palatable.
That’s what environmental and consumer advocates are worried about in California, where the Public Utility Commission is currently considering requests by the state’s four largest energy companies to raise each of their ROE. Utilities in the state have reported record profits amid a worsening affordability crisis. On Friday, the commission signaled that it would instead lower the companies’ ROE — although not nearly as much as advocates have recommended. A final decision is expected in December.
“It’s a joke,” Ellis, the former utility executive, told me of the commission proceedings. “If you read the proposed decision, they don’t address any of the facts or evidence in the case at all.” His own analysis, which he submitted to the California commission on behalf of the Sierra Club, proposes that an average ROE of 6%, down from about 10%, would be justified and has the potential to save California energy customers more than $6 billion per year.
Utilities, of course, disagree, and have brought their own analysis and warnings about the risks of lowering their ROE. Regulators are left to sort through it all to figure out the magic number — one large enough to appeal to investors, but not so large as to throw ratepayers under the bus.
How does the ROE work its way into your bill? Let’s say your local utility, The Electric Company, has a regulated return on equity of 10%, and it plans to spend $100 million to build new substations. Utilities typically finance these kinds of capital projects with a mix of debt (loans they will have to pay interest on) and equity (shares sold to investors). Then they recover that money from ratepayers over the course of decades. If The Electric Company raises half of the capital, or $50 million, via equity, an ROE of 10% means it will be able to charge ratepayers $5 million on top of the cost of the project. That additional $5 million is factored into the per-killowatt-hour rates that customers pay. The profit can then be reinvested into future projects, issued to shareholders as dividends, paid out to executives as bonuses — the list goes on.
The energy research group RMI, which agrees that the average utility ROE is much too high, estimates the surcharge currently makes up between 15% and 20%% of the average customer’s utility bill. “Setting ROEs at the right level is necessary to bring forward a rapid, just, and equitable transition,” RMI wrote.
Utilities, however, say the “right level” is likely higher, not lower. They warn that in reality, lowering their ROE would trigger a cascade of negative effects — credit downgrades, higher borrowing costs, lower stock prices, investors taking their money elsewhere — that would push energy rates up, not down. These effects would also make it more difficult for utilities to invest in projects to clean up and expand the electric grid.
Timothy Winter, the portfolio manager of a utility-focused fund at the investment firm Gabelli, told me this “virtuous cycle” runs in both directions. Higher ROEs lead to a lower cost of capital, which leads to more investment, better reliability, and lower rates, he argued. Winter said that if California regulators reduced utility ROEs to 6%, investors would flee the state.
Between growing wildfire risk and the bankruptcy of California’s largest utility, PG&E, California energy providers are too exposed to warrant such low returns, he said. As a comparison, he noted that U.S. Treasury bonds, which are generally viewed as risk-free, yield about 4%. “If it’s a 6% return with an equity risk, they’re not going to do it,” he said of investors.
I probed Winter a bit more on this. Is that really true given that utilities are still, in many ways, the opposite of risky investments? They have captive customers, stable income, and are seeing skyrocketing growth in demand for their product.
This caused him to spiral down into an investor’s worst nightmare scenario. “Yes, there is a risk,” he said. “If a regulator is willing to give a 6% return and they used to give 11%, how do I know they’re not going to decide, okay, rates keep going up, next rate case it’s going to be 4%?” After that, he said, how can investors be sure the government won’t end up taking over the utility altogether?
Travis Miller, a senior equity analyst at Morningstar, was more measured. He hesitated to tell me whether a 6% ROE would hurt utilities’ ability to raise capital. “What usually happens” when regulators lower the ROE, he said, “is the utilities just decide not to invest very much, so then they don’t have to raise capital.” He would expect the California utilities to “invest to maintain reliability and that’s about it,” meaning that “a lot of new data center build that is planned in California would have to go elsewhere.”
Return on equity also isn’t the only thing investors look at, Miller added. They consider the overall regulatory environment. Is it predictable? Is it transparent? He said there have been cases where regulators cut a utility’s ROE but the overall regulatory environment remained strong, and other instances where the cut to ROE was “another sign of a deteriorating relationship” — a phrase that brings to mind Winter’s panic about government takeovers. (I should note, advocates for public takeovers of utilities cite this whole dynamic around the need to woo investors and the perverse incentives it creates as a key justification for their cause. Publicly-owned utilities — which serve about 1 in 7 electricity customers in the U.S., including in large cities like Sacramento, Los Angeles, and Seattle — don’t charge an ROE.)
When I spoke to Ellis about his proposal, I fired off all of the utility arguments I could think of. Won’t utilities stop building stuff and making the investments we need them to make if they can’t earn as much? “They have a legal obligation to continue to invest,” he said. But will they be able to raise equity? They don’t necessarily need to raise new equity, he responded, suggesting that utilities could reinvest more of their profits rather than distributing the money as dividends. This is not how utilities traditionally operate, he admitted, but it’s an option.
Prior to taking up the consumer cause, Ellis spent 15 years in leadership and executive roles at Sempra Energy, the parent company of San Diego Gas and Electric and SoCal Gas — two of the companies that petitioned for higher ROE. “I know how they think about this issue,” he told me, asserting that the arguments the companies make to regulators do not match how they think about ROE internally.
During our interview, Ellis described the current state of utility regulation of ROE in California as “reprehensible,” “egregious,” “heartbreaking,” and “a huge injustice.”
In the analysis he submitted to the utility commission, Ellis not only makes the case that the average U.S. utility’s ROE is much higher than is necessary to attract capital, but also that the potential impacts to consumers of lowering it — i.e. the potential to hurt a utility’s credit rating and increase its cost of debt — would be outweighed by customer savings.
He argues that to justify their requests for higher ROEs, the utilities use forecasts from biased sources, cherry-pick and manipulate data, and make economically impossible assumptions, like that earnings will grow faster than GDP.
Stephen Jarvis, an assistant professor at the London School of Economics who has conducted research on ROE rates, has reached similar conclusions about them being excessively high. Nonetheless, he told me he sympathized with the challenge regulators face. He said there was no “right” answer for how to calculate the appropriate ROE. “Depending on the assumptions that you use, you can come up with quite different numbers for what a fair rate of return should be,” he said.
The sentiment echoes the preliminary decision the California Public Utilities Commission issued last week, when it observed that all of the proposals submitted in the proceeding were “dependent on subjective inputs and assumptions.”
Ellis said the decision contained a “smoking gun,” however, proving that the commission didn’t really do its job. Changes in ROE are supposed to reflect changes to a company’s risk profile, he said. The risk profile for Southern California Edison, which is facing lawsuits related to the Eaton Fire and already paying out hundreds of millions of dollars to survivors, has certainly changed in a different way than its peers. Regardless, the commission made the exact same recommendation for each utility to reduce ROE by 0.35%. “The Commission clearly is not looking at the evidence.”
There is likely some truth to that. “It’s more art than science,” Cliff Rechtschaffen, who served for six years on the California Public Utilities Commission, told me when I asked how the people in those seats attempt to calibrate ROE. He acknowledged there was a self-reinforcing element to the process — regulators look at where investors might go if the rate of return is too low, and use that to determine what the rate should be. “But the rates of return that are set in other jurisdictions are, in turn, influenced by the national utility market, which includes your own utility market,” he said.
Similarly, regulators rely on market analysts, investment advisors, investment bankers, and so on, who have an inherent interest in building up the market and ensuring healthy rates of return, he said. “That makes it harder to discern and do true price discovery.”
Rechtschaffen said he was glad that environmental and consumer advocates were bringing greater scrutiny to ROE, adding that it was the “right time” to do so. “Particularly in this environment where utilities have forecast that they’re going to be spending tens of billions of dollars on capital upgrades, do we need the same rates of return that we’ve seen?”
On ravenous data centers, treasured aluminum trash, and the drilling slump
Current conditions: The West Coast’s parade of storms continues with downpours along the California shoreline, threatening mudslides • Up to 10 inches of rain is headed for the Ozarks • Temperatures climbed beyond 50 degrees Fahrenheit in Greenland this week before beginning a downward slide.
The Department of Energy’s Loan Programs Office just announced a $1 billion loan to finance Microsoft’s restart of the functional Unit 1 reactor at the Three Mile Island nuclear plant. The funding will go to Constellation, the station’s owner, and cover the majority of the estimated $1.6 billion restart cost. If successful, it’ll likely be the nation’s second-ever reactor restart, assuming Holtec International’s revival of the Palisades nuclear plant goes as planned in the next few months. While the Trump administration has rebranded several loans brokered under its predecessor, this marks the first completely new deal sanctioned by the Trump-era LPO, a sign of Energy Secretary Chris Wright’s recent pledge to focus funding on nuclear projects. It’s also the first-ever LPO loan to reach conditional commitment and financial close on the same day.
“Constellation’s restart of a nuclear power plant in Pennsylvania will provide affordable, reliable, and secure energy to Americans across the Mid-Atlantic region,” Wright said in a statement. “It will also help ensure America has the energy it needs to grow its domestic manufacturing base and win the AI race.” Constellation’s stock soared in after-hours trading in response to the news. Holtec’s historic first restart in Michigan got the green light from regulators to come back online in July, as I reported in this newsletter at the time. But already another company is lining up to turn its defunct reactor back on: As I reported here in August, utility giant NextEra wants to revive its Duane Arnold nuclear station in Iowa. The push to restart older reactors reflects a growing need for electricity long before new reactors can come online. Meanwhile, next-generation reactors are plowing ahead. The nuclear startup Valar Atomics claimed this week to achieve criticality long before the July 4 deadline set in an Energy Department competition.
Over the next five years, American demand for electricity is set to grow by the equivalent of 15 times the peak demand of the entirety of New York City. That’s according to the latest annual forecast from the consultancy Grid Strategies. The growth — roughly sixfold what was forecast in 2022 — comes overwhelmingly from data centers, as shown by which regions expect the largest growth:

“The fact that these facilities are city-sized is a huge deal,” John Wilson, Grid Strategies’ vice president and the report’s lead author, told Canary Media. “That has huge implications if these facilities get canceled, or they get built and don’t have long service lives.” Mounting political opposition to data centers could make deals less certain. A Heatmap Pro survey in September found just 44% of Americans would welcome a data center opening nearby. And last week I wrote about how progressives in Congress are rallying around a crackdown on data centers.
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The contrast couldn’t be starker. In Washington, President Donald Trump rolled out the red carpet for Saudi Crown Prince Mohammed bin Salman, offering an opulent welcome to the White House and lashing out at reporters who asked about September 11 or the killing of journalist Jamal Khashoggi. In Belém, Brazil, meanwhile, former Vice President Al Gore tore into the team of delegates Saudi Arabia sent to the United Nations climate summit for “flexing its muscles” in negotiations about how to shift away from oil and gas. “Saudi Arabia appears to be determined to veto the effort to solve the climate crisis, only to protect their lavish income from selling the fossil fuels that are the principal cause of the climate crisis,” Gore told the Financial Times. “I hope that the rest of the world will stand up to this obscene greed and recklessness on the part of the kingdom.”
But the Trump meeting could yield some progress on clean energy. Among the top issues the White House listed in its read-out of the summit was the push to export American atomic energy technology to Saudi Arabia as the country looks to follow the United Arab Emirates in embracing nuclear power.
Facing growing needs for domestic sources of metal for the energy transition, the European Union is seeing its trash as treasure. On Tuesday, the European Commission proposed restricting exports of aluminum scrap amid what The Wall Street Journal called “concerns that rising outflows of the resource could leave Europe short of a critical input for its decarbonization efforts.” Speaking at the European Aluminum Summit, EU trade chief Maros Sefcovic referred to the exports as “leakage.” The proposal wouldn’t fully block sales of aluminum scrap overseas, but would adopt a “balanced” measure that ensures sufficient supplies and competitive prices in the single market. “Scrap is a strategic commodity given its important contribution to circularity and decarbonization, as production from secondary materials releases less emissions and is less energy intensive, as well as to our strategic autonomy,” Sefcovic said. The measure is set to be adopted by spring 2026.
In the U.S., the Biden administration made what Heatmap’s Matthew Zeitlin last year called a “big bet” on aluminum. The Trump administration slapped steep new tariffs on imported aluminum, though as our colleague Katie Brigham wrote, “aluminum producers rely on imports of these same materials to build their own plants. Tariffs on these vital construction materials — plus exorbitant levies on all goods from China — will make building new production facilities significantly costlier.”

The average number of active rigs per month that are drilling for oil and natural gas in the continental United States fell steadily over the past year. As of last month, the U.S. had 517 rigs in operation, down from a peak of 750 in the end of 2022. The number of oil-pumping rigs dropped 33% to 397 rigs, while gas-pumping rigs slid 23% to 120 rigs over the same period from December 2022 to October 2025. While the Energy Information Administration said the declining rig count “reflects operators’ responses to declining crude oil and natural gas prices,” the federal research agency said it’s also “improvement in drilling efficiencies,” meaning companies are getting more fuel out of existing wells.
It’s been a pattern in recent research on sustainability. Scientists look at methods that Indigenous groups have maintained as traditions only to find that approaches that have sustained throughout centuries or millennia are finding new value now. A study by the University of Hawaiʻi at Mānoa’s Hawaiʻi Institute of Marine Biology found that Native Hawaiian aquaculture systems — essentially fish ponds known as loko iʻa — effectively shielded fish populations from the negative impacts of climate change, demonstrating resilience and bolstering local food security. “Our study is one of the first in academic literature to compare the temperatures between loko iʻa and the surrounding bay and how these temperature differences may be reflected in potential fish productivity,” lead author Annie Innes-Gold, a recent PhD graduate from the university, said in a press release. “We found that although rising water temperature may lead to declines in fish populations, loko iʻa fish populations were more resilient.”