1) A Red-Blue State Divide on Electricity Rates Will Open a Political Fault Line

Contributor: Jim Kapsis, Founder & CEO

If you thought affordability was a flashpoint in 2025, brace for 2026. Media coverage highlighted rising rates in 2025, but missed two critical details: the problem isn’t uniform across the country, and the causes vary widely (it’s not just the data centers!).

In fact, electricity prices have been flat or falling when adjusted for inflation in many states — and those states are disproportionately Republican-led.

With 36 gubernatorial elections and congressional midterms in November, both parties will face pressure to position themselves as the solution, not the problem. We could be in for a dangerous ride. Governors will push state regulators to hold the line on rates, even if it means delaying critical grid investments that would bolster reliability and resilience when we need it most.

Virginia’s new governor, Abigail Spanberger, is appointing an energy czar. New Jersey’s new governor, Mikie Sherrill, pledged to freeze rates. In California, gubernatorial candidate Tom Steyer is targeting the utility business model itself. One of them will break through with a plan or narrative that reshapes the debate — and delivers a political advantage to their party.

And watch out for the hyperscalers — Google, Microsoft, Amazon, Meta — they’re not going to sit on the sidelines; they have a lot to lose if they can’t get their data centers connected to the grid.

Let the games begin.

2) Prepare for a Wave of Utility and Startup M&A

Contributor: Julia Hamm, Partner

America's electric utilities plan to spend over $1.1 trillion modernizing the grid between 2025 and 2029, according to the Edison Electric Institute. The reason: aging infrastructure, climate-driven weather extremes, and exploding AI data center load growth are converging to strain the system.

That's more capital than utilities have ever needed to raise, and traditional financing won't cut it in 2026. Last year's Brookfield deal — a $6 billion investment for a 19.7% stake in Duke Energy Florida — shows where this is headed. Expect more utilities to sell equity interest, merge to create larger service territories, or offload less profitable regions to fund upgrades in their core markets.

Capital isn’t the only ingredient for success. Utilities also need deeper partnerships with grid tech companies. Incumbent vendors will race to acquire startups with breakthrough solutions. Itron's recent acquisitions of Urbint and Locusview are just the beginning.

These acquisitions will accelerate time to market for the critical new technologies underpinning the $1.1 trillion in grid investment.

3) FERC Will Kneecap Demand Response — Just When We Need It Most

Contributor: Rao Konidena, Senior Advisor

The Supreme Court sided with FERC in 2016, affirming the agency's authority to pay demand response (DR) programs the full wholesale electricity price. But the landscape has shifted — different FERC commissioners, different SCOTUS justices. An effort to slash DR compensation could finally succeed in 2026.

New York's independent market monitor fired a warning shot in their 2024 State of the Market report, arguing that paying DR full price ignores the cost savings customers already get by consuming less electricity. The monitor warns that frequent data center DR dispatch could impose “unsustainable costs” on other market participants.

The timing couldn’t be worse. Demand response is already suffocating under barriers from the wholesale market: PJM's capacity auctions are missing approximately 1,500 MW of residential DR due to data access issues. MISO has over 8,782 MW of distributed resources unregistered with the grid operator. SPP doesn’t let aggregators participate, arguing that DR isn't "deliverable" like generators.

If FERC pulls the plug on DR compensation, expect capacity prices to skyrocket and grid reliability to suffer — precisely when large loads like data centers are driving unprecedented demand growth.

4) Economic Pressure Will Finally Force Grid Innovation

Contributor: Janet Joseph, Senior Advisor

Innovation follows pain. And across the country, the pressure on America's power grid is mounting. Long overdue upgrades are colliding with surging demand and affordability concerns.

New York illustrates how these tensions are coming to a head.

New York City Mayor Zohran Mamdani rose to national prominence by making affordability a governing mandate. That political reality is colliding with the physical reality: aging infrastructure, increasing extreme weather, and unprecedented demand are straining the grid and pushing costs onto consumers.

At the state level, Gov. Kathy Hochul is navigating federal-state tensions over offshore wind — a cornerstone of New York's climate goals and long-term energy supply strategy. These conflicts create uncertainty right as data centers, advanced manufacturing, and electrification are accelerating demand.

The result? We may finally see the grid catch up with the rest of the digitally transformed economy. Perhaps New York's Reforming the Energy Vision initiative was ahead of its time, and 2026 is when its promise of grid modernization and dynamic grid-edge management starts gaining traction. Economic necessity may finally do what climate policy alone could not: force grid innovation at scale.