The New York Utility Divide: How Regulatory Shifts Are Redrawing Sector Valuations

New York's utilities are at a crossroads. Governor Kathy Hochul's rejection of Consolidated Edison's (ED) 11.4% rate hike request and her push for compensation audits signal a tectonic shift in regulatory priorities—one that could permanently separate winners and losers in the sector. For investors, this isn't just about avoiding regulatory headaches; it's about identifying utilities positioned to thrive in a world where affordability, transparency, and clean energy alignment are non-negotiable.

The Regulatory Hammer Falls on Rate-Hungry Utilities
Hochul's decision to block Con Ed's proposed $1.8 billion rate increase—set to take effect in early 2026—marks a turning point. The PSC's 11-month review process, which delayed the hike's approval, underscored the state's new stance: utility profits must align with public priorities, not just corporate balance sheets.

Con Ed's share price has lagged behind clean energy leaders like NextEra, reflecting investor skepticism about its regulatory risks.

The rejection sends a clear message: aggressive rate-seeking utilities—those relying on volatile earnings models or opaque cost structures—face a tougher road. Con Ed's proposed hikes were justified by infrastructure investments, but regulators questioned their necessity. For instance, 27% of the electric rate increase stemmed from property taxes, while 30% was tied to capital investments that critics argue could be delayed.

Meanwhile, Hochul's compensation audit of utility executives (targeting Con Ed's $15 million CEO pay package in 2024) amplifies scrutiny. The audit isn't just about fairness—it's about forcing utilities to prove that ratepayer dollars fund services, not perks.

The Risk: Utilities with Opaque Earnings and Derivatives Exposure
Utilities like NRG Energy (NRG) face heightened risks. NRG has long used derivatives to hedge energy price fluctuations, but this creates earnings volatility—a red flag for regulators and investors alike.

NRG's earnings swings highlight the risks of derivative-driven models, which regulators may now penalize.

The CLCPA's clean energy mandates also pose a threat. NRG, which generates 64% of its power from fossil fuels, must invest heavily to meet New York's zero-emission goals by 2040. Without a clear path to cost recovery, its earnings could face double whammy pressure: regulatory penalties and stranded fossil fuel assets.

The Opportunity: Utilities Aligned with Clean Energy and Transparency
The winners are utilities that embrace affordability and innovation. Oklo, a small modular reactor (SMR) developer, is a case in point. Its SMRs—smaller, safer nuclear reactors—fit neatly with New York's push for reliable, carbon-free energy. While not publicly traded, Oklo's partnerships with utilities like Exelon (EXC) could unlock value as regulators favor grid stability and clean energy.

NextEra Energy (NEE), the U.S. renewables leader, already embodies this trend. Its 65 GW of wind and solar capacity positions it to capitalize on state mandates, while its regulated utility arm (Florida Power & Light) offers stable cash flows. NEE's 18% CAGR since 2020 vs. Con Ed's 2% highlights the market's preference for clean energy alignment.

Even within traditional utilities, firms like Avangrid (AGR) are outperforming due to their focus on grid modernization and renewables. Avangrid's 2023 deal to acquire PNM Resources—a New Mexico utility with a 50% renewable target—showcases the merger of affordability and innovation.

Investment Strategy: Avoid Rate-Seekers, Embrace Clean Energy Champions
- Sell Short Con Ed (ED): Its opaque cost structures and reliance on rate hikes make it vulnerable to further regulatory pushback. The PSC's scrutiny of its capital investments and executive pay could cap returns.
- Avoid NRG (NRG): Its fossil fuel-heavy portfolio and derivative-heavy earnings model expose it to regulatory and climate-related headwinds.
- Buy NextEra (NEE): Its renewables dominance and regulated utility earnings provide a safe haven in a shifting regulatory landscape.
- Look to SMRs: Oklo's partnerships (e.g., with Exelon) offer indirect exposure to the clean energy transition, though investors should wait for clearer commercialization timelines.

Conclusion: Regulators Are Rewriting the Rules—Investors Must Too
Governor Hochul's actions are part of a broader national trend: regulators are no longer passive arbiters of utility rates but active enforcers of affordability and climate goals. Utilities that treat ratepayers as partners—rather than piggy banks—will thrive. For investors, this means sidelining opaque, rate-hungry firms and betting on clean energy leaders. The utilities sector isn't just evolving—it's splitting into two camps. Choose wisely.