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FirstEnergy and other utilities are warning that Trump administration tariffs on Canada, Mexico and other countries could hurt them, according to risk disclosures included in annual reports filed last month with the U.S. Securities and Exchange Commission.
The alerts on tariffs come as U.S. utilities have been expanding their capital expenditure plans to build transmission lines and power plants to meet rising demand growth, partly driven by data center development.
“Any widespread imposition of new or increased tariffs could have an adverse effect on our results of operations, cash flow and financial condition,” FirstEnergy said in a Feb. 27 filing. “New or increased tariffs could also negatively affect U.S. national or regional economies, which also could negatively impact our business and results of operations.”
Deteriorating economic conditions triggered by tariffs or other causes generally lead to reduced electric use by customers, particularly industrial customers, according to American Electric Power.
“The current administration has implemented tariffs on certain imported goods and may impose additional tariffs,” AEP said in a Feb. 13 filing. “As a result, prevailing economic conditions may reduce future net income and cash flows and negatively impact [our] financial condition.”
Tariffs could disrupt supply chains and delay building, maintaining and repairing infrastructure needed to support operations or are required to execute AEP’s plans for continued capital investment and to transition its generation fleet, the Columbus, Ohio-based utility company said.
Tariffs could also drive up the price of materials and equipment, increase the cost of capital and extend procurement lead times, according to AEP.
President Trump on March 4 imposed 25% tariffs on imports from Mexico and Canada, and increased tariffs on imports from China by 10%. Those countries responded with plans to impose tariffs on U.S. imports.
The tariffs could limit access to electrical equipment, such as transformers, needed to maintain and expand the grid, according to a report released Monday by the Atlantic Council, a think tank. The U.S. imports about 80% of its electric transformers, with Mexico being the largest supplier, according to the report.
Also, Trump’s 25% tariffs on steel and aluminum will raise prices of grain-oriented electrical steel that is used to make transformers, increasing the price of U.S.-made transformers, the report’s authors said.
“Higher prices for transformers, especially transformers imported from Mexico, because of tariffs will raise project-development costs and delay infrastructure upgrades, hitting Texas hardest,” they said, noting there is a transformer shortage.
‘The operative word is uncertainty’
Even so, it’s not clear how the tariffs will affect utilities, according to analysts.
“It's very hard to predict what's going to happen. We’re in uncharted territory,” Paul Patterson, an equity analyst at Glenrock Associates, said in an interview, noting the tariffs could expand to Europe and other countries. “The operative word is uncertainty.”
However, it is unlikely that utility multi-year capital expenditure plans will be directly affected by tariffs, according to Patterson. More immediate issues are inflation and the possibility of the United States entering into a recession, he said. But, if infrastructure becomes more expensive to build, utilities may face pressure to delay projects, according to Patterson.
Travis Miller, a Morningstar analyst, doubts tariffs will have much effect on utility capital expenditure plans. “Most utilities either get their equipment from domestic manufacturers or have contracts for already secured equipment deliveries from outside the U.S.,” he said in an interview.
The Edison Electric Institute, a trade group for investor-owned utilities, plans to work with the Trump administration to ensure that any new tariffs don't raise customer energy bills due to higher commodity prices, according to Scott Aaronson, EEI senior vice president, energy security and industry operations.
“Our industry must have access to the critical components, commodities, and equipment needed to operate the grid, as we work to meet growing customer demands for electricity reliably and affordably,” Aaronson said in an email. “Electric companies are committed to keeping costs to customers as low as possible.”
The National Electrical Manufacturers Association on Tuesday called for trade policies that provide predictability and certainty, with a “reasonable” transition period for large-scale manufacturing to come online in the U.S.
“NEMA urges the Trump Administration to reach a long-term deal that strengthens trade across North America, provides business certainty for the essential electrical industry, and facilitates our shared goals of a robust energy sector and strong U.S. manufacturing base,” NEMA President and CEO Debra Phillips said in a statement.
It’s unclear how long the tariffs against Canada and Mexico will last, according to Capstone.
“Capstone believes the market’s reaction to the universal tariff on all imports from Canada, Mexico, and China, coupled with the impact these tariffs will have on the US auto industry and gas prices, will prompt Trump to remove the tariffs on Canada and Mexico,” analysts with the research firm said in a Tuesday note. “Even if superficial, concessions from Canada and Mexico could give Trump an out, allowing him to parade his tariffs as successful while avoiding further market volatility.”
