Utility Credit: Ten Themes for 2026
Andy DeVries, CFA: Head of Investment Grade, Head of Utilities - CreditSights
Nick Moglia, CFA: Senior Analyst, REITs, Utilities and Refiners - CreditSights
Diego Espinosa Valdez: Analyst, Utilities - CreditSights
8 January 2026
Insights into Utility Credit: Ten Themes for 2026, including:
- Stable Credit Quality Despite Capex Surge: Discover why we forecast stable FFO/debt metrics and investment-grade performance even as capex reaches $230bn, with utilities successfully raising rates and issuing equity/hybrids to maintain balance sheet strength.
- Hybrids Outperformance Strategy: Learn how dropping down from mid-BBB holdcos to low-BBB hybrids delivered 80 bps of outperformance in 2025, and why this trade remains attractive in 2026 with reset rates averaging 229-256 bps offering strong extension risk compensation.
- Datacenter Overbuild Thesis: Uncover the critical supply/demand disconnect where utilities are connecting 112 GW of datacenter capacity by 2030—nearly 3x the 40 GW third-party demand estimates—and understand how this impacts utility credit positioning and Big Tech AI compute plays.
- Enhanced Ratepayer Protections: See how over a dozen approved datacenter tariffs with up-front collateral, minimum volume commitments, and early exit fees are reshaping utility risk profiles, with 2026 bringing further legislative action in key states like California and Texas.
- Nuclear Renaissance and SMR Momentum: Track the $150bn issuance outlook as utilities capitalize on nuclear datacenter deals at $85-95/MWh premiums (50% above forward markets), while at least one small modular reactor project moves to final investment decision backed by Big Tech and federal support.
Executive Summary
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Despite another year of surging capex and continued politician focus on customer bills/affordability, we have a strong conviction that utility credit quality and credit metrics will remain stable in 2026 with overall utility credit performance driven more by external factors (strong economy = risk on and utilities underperform, or vice versa) than anything unique to the sector. While capex gets all the attention, we highlight 2025 capex of $208 bn (per EEI) rose 17% over 2024 but LTM FFO/debt increased from 13.8% at 2024YE to 14.5% at 3Q25 despite this capex surge. While we aren’t calling for further increases, we don’t see any declines either as the group continues receiving rate increases to boost FFO, issuing hybrids and straight equity to lower debt needs and, to a much lesser extent, selling assets (mainly minority interests in opcos and/or new datacenter gencos).
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We expect $150 bn of new IG utility issuance in 2026 based on $230 bn of capex (an increase from EEI forecast of $221 bn) that is 55% internally funded (actual 3Q25 LTM) and 10% equity funded for a new debt issuance of $81 bn, plus $20 bn of hybrids. Then we add in $32 bn of 2025 maturities to arrive at $133 bn of issuance plus another $17 bn for capex outside the EEI capex universe for our official forecast of $150 bn. This compares to $135 bn issued last year and $120 bn in 2024.
- We have broken out our Ten Themes for 2026 into somewhat tradeable ones and thematic ones but the obvious caveat is the entire IG market is incredibly tight (corporates +77, utilities +84) so our tradeable themes aren’t exactly huge money makers like last year.
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