4 Undervalued Utilities Stocks to Watch Ahead of the Midterm Elections

A lot is riding on the midterm elections on Nov. 3, 2026. That includes the outlook for utilities companies, which are heavily regulated. Electricity prices have climbed 10% nationwide since 2025, nearly twice as much as overall inflation. Meanwhile, data centers and clean energy, and their effect on affordability, are hotly debated issues. As a result, regulators and politicians are facing public scrutiny going into the election.

With interest rates rising and utilities planning huge capital investments, regulatory developments after the election are critical for investors to watch. Poor utilities regulation could send consumer bills higher and hinder utilities companies’ earnings growth. Constructive regulation should benefit both customers and investors.

In the Oct. 30 Investing Insights episode, Morningstar senior analyst Travis Miller explained what’s at stake: “In states where [data center costs are] not allocated correctly or there’s poor regulation, affordability is going to slow down that growth potential. In states with constructive regulation, a lot of support from politicians, utilities are going ... to hit ... 7%, 8% growth rates.”

That’s why Morningstar’s utilities analysts are “watching state by state at this time of the year, election by election,” Miller says. “[T]hat’s going to determine which utilities can grow faster.”

Winners of the gubernatorial elections in states where governors appoint utilities commissioners could shift regulatory policy. In California and New York, for example, renewable energy and its effect on affordability are key issues in the races. In Pennsylvania and particularly Texas’ tight election, data centers are a big story: Will the cost of building new infrastructure drive up consumer bills? Do the benefits of data centers offset environmental and quality-of-life costs in the communities where they are located?

In a recent report, Miller and co-author Andrew Bischof share four top utilities picks going into the election.

Because regulatory risk is a key input to Morningstar Economic Moat Ratings for utilities stocks, Morningstar’s analysts give utilities companies regulatory rankings on a scale of 1 (low) to 5 (high), with actual scores ranging from 2.3 to 3.8. Four factors affect these regulatory scores: allowed returns (the legally permitted rate of return that the company is allowed to earn); timely rate adjustments (which are affected by state law); management execution; and stakeholder relations.

The four companies below score relatively well by that measure, and their stocks had Morningstar Ratings of 4 or 5 stars as of Oct. 29, indicating they were priced well below our analysts’ fair value estimates.

• Alliant Energy LNT (regulatory score of 3.8) operates in Iowa and Wisconsin, where significant data center expansions are expected. Both states face key gubernatorial elections, but both states have also shown the ability to support constructive regulatory environments regardless of the governor’s political affiliation.
• DTE Energy’s DTE (3.3) price reflects concerns about the Michigan race to replace Gov. Gretchen Whitmer. The election result could impact the state’s regulatory outlook. But at current prices, investors are assuming no growth in energy demand and ignoring the long-term data center growth opportunities.
• Duke Energy DUK (3.8) plans to invest more than $103 billion through 2030, supporting annual earnings growth at the high end of management’s 5%-7% range. Duke’s largest subsidiaries are in North Carolina, which has no gubernatorial election this year. Duke also has $5 billion to $10 billion of capital investment opportunities to serve large loads in Florida and Indiana. There is no gubernatorial election in Indiana this year; Miller and Bischof expect Florida to maintain best-in-class regulation regardless of the election outcome.
• Edison International EIX (3.5) could be negatively affected by the energy affordability and clean energy policies of California’s next governor. But Edison’s five-year investment plan and recent regulatory approvals support a five-year forecast of 7% annual earnings-per-share growth, in line with peers’ growth. Meanwhile, the stock trades significantly below its fair value and currently yields more than 6%.

Other Stocks to Keep an Eye on

In this year’s rankings, Pinnacle West PNW (score of 3.0), Consolidated Edison ED (2.8), and Ameren AEE (3.3) moved up after constructive regulatory developments. Southern SO, Sempra SRE, and American Water Works AWK (all with a score of 3.3) moved down because of rising political risk.