Electric utility makes case to keep profit margin despite state’s rate increase rethink

Political maneuverings by Indiana leaders could raise costs for AES Indiana and the electricity customers they seek to aid, the utility’s representatives are warning in testimony to state regulators.

They maintain that neither a BlackRock-backed buyout of parent company AES nor a Google data center planned for central Indiana will impact a thorny base rate case settled over the summer.

A remade Indiana Utility Regulatory Commission voted in September to reopen the case for a look at those two developments.

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That decision came under unusual circumstances, involving an unhappy Gov. Mike Braun, a fired regulator and a lawsuit. The IURC in June had approved a $71 million increase for the electric utility that serves about 500,000 customers in the Indianapolis metropolitan area. AES Indiana is one of five investor-owned utilities in the state.

Braun focused on candidates who prioritize customer affordability in his overhaul of the IURC. State law, meanwhile, defines the commission as an “impartial fact-finding body.”

Investment research firms and critical credit rating agencies took note of the chaos.

“Further deterioration in the perception of the regulatory environment of Indiana will not only have negative consequences for AES Indiana and its customers but will negatively impact every other utility operating in Indiana,” AES Treasurer Dustin Illyes said in testimony filed Oct. 23.

Other parties to the case will file testimony by Jan. 12.

In exchange for monopoly power in their designated service territories, the utilities submit to IURC oversight of their rates, profits, big projects and more.

BlackRock, Google impact denials

Parent company AES — which also owns AES Ohio — announced in March it had agreed to be purchased by a group of domestic and foreign investors, including a BlackRock-owned subsidiary.

The deal sparked alarm among Hoosier leaders and residents distrustful of BlackRock and its partners, who worry the new owners will raise rates further in pursuit of higher profits.

Shareholders, the U.S. Treasury’s foreign investment reviewer and Ohio state regulators have since cleared the proposal. But the IURC doesn’t have that power of review in Indiana.

Commissioners acknowledged their lack of jurisdiction when they greenlit the BlackRock-focused reconsideration, but said the effects could “trickle into areas” within state control.

“The reopening of the evidentiary record to take evidence regarding what the Commission referred to as post-transaction ‘trickle’ effect into areas within its jurisdiction is concerning,” Illyes said.

His testimony reassures the IURC that customers will not shoulder any acquisition-related costs.

AES Indiana representatives also promised the deal wouldn’t affect the utility’s short-term business outlook — and argued it shouldn’t be used as a reason to further cut profits.

Utilities fund infrastructure projects using debt and equity from investors.

Adrien McKenzie, president of consulting firm Financial Concepts and Applications, testified the purchase would improve access to equity capital for such projects — but that “continued access to investors’ equity capital depends on their perceived ability to earn a fair return.”

The June rate hike also lowered AES Indiana’s authorized return on equity to 9.5%, meaningfully lower than the 9.9% approved in a 2024 rate case and 9.99% in 2018.

He repeatedly emphasized that there’s “no basis” on which to reduce it again.

The IURC also sought answers on whether powering a Monrovia data center would impact AES Indiana’s business outlook and therefore necessitate a change in profits.

The commission previously allowed the utility — under a separate case — to build a pair of battery energy storage systems and more in order to serve Google.

Chad Rogers, director of regulatory affairs at AES Indiana, said the project doesn’t affect these proceedings because the utility’s petition is based on projected data for 2026.

The data center won’t be operational this year, so it doesn’t impact the cost of service, Rogers said.

He framed the project as a potential boon for customers, with revenue from Google covering between $300 million and $770 million of the fixed costs AES Indiana already bears. That could save the average residential customer using 1,000 kilowatt hours of electricity monthly between $1 and $6 on every bill from 2028 to 2042.

Credit downgrades feared

Not only should the IURC avoid another profit level reduction, Illyes argued, the 9.5% approved in June is already too low.

He pointed to a June downgrade by major credit rating firm Moody’s as evidence that the profit rate “was not sufficient to maintain the credit ratings of AES Indiana.”

Credit ratings can directly impact access to capital and the cost of debt.

The Moody’s rating action specifically says the downgrade is “unrelated” to the BlackRock acquisition. The credit rating agency’s rationale focuses on high capital spending associated mostly with data centers, which is expected to worsen the ratio of cash flow from operations to debt, but lists several factors mitigating the risks associated with the Monrovia project specifically.

Illyes also noted a mention of the IURC’s profit cut and doubts about regulatory consistency.

“Credit rating agencies recognize that cash flow metrics remain of utmost importance in light of this elevated capital spending,” he said. “That is why a predictable regulatory framework matters; the agencies view growth like this as credit-supportive when it is paired with a stable regulatory environment with predictable, full and timely cost recovery, and regulatory uncertainty weakens that support.”