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NextEra and Dominion must convince state and federal regulators that combining two of the U.S.’s largest utilities will benefit customers

NextEra Energy NEE -4.63%decrease; red down pointing triangle and Dominion Energy D 9.44%increase; green up pointing triangle have agreed to combine in a blockbuster utilities deal. Now comes the hard part: a regulatory marathon.

The companies must convince a web of state and federal regulators that combining two of the U.S.’s largest utilities will benefit customers and avoid increasing electricity bills at a time of heightened scrutiny on consumer costs and grid reliability.

Dominion owns the transmission lines at the center of America’s data center boom in northern Virginia’s “Data Center Alley,” while NextEra is a major developer of the power generation and batteries needed to fuel energy-hungry AI campuses.

The $67 billion deal would create an East Coast energy behemoth with 10 million customer accounts in Florida, the Carolinas and Virginia. It would be the largest U.S. electricity producer—specifically the biggest provider of natural gas-fired power and No. 2 in nuclear, the companies said.

The tie-up will offer the next test of the Trump administration’s willingness to consider mergers that reshape industries. It needs approval from utility commissions in Virginia, North Carolina and South Carolina, which are increasingly focused on making sure data centers shoulder the cost of grid upgrades and new power plants. It will also require the approval of the Federal Energy Regulatory Commission and the Nuclear Regulatory Commission.

The path through the state regulators will be “challenging,” said Alex Torgerson, partner in mergers and acquisitions at West Monroe, while federal regulators will be “slightly below challenging.”

“None of this is going to be easy,” he added.

The utility industry is facing its biggest increase in customer demand in decades, much of it driven by artificial intelligence-related data center construction. New data centers require city-size amounts of electricity, and access to power has become a key hurdle in the global AI race.

Much of the growth potential for the combined company revolves around data centers, which face a growing backlash in much of the country. Having data centers or other large customers added to the power grid can bring local benefits, Torgerson said, but he called it a difficult narrative for states.

“You’re going to commissions where their responsibility is really consumer protection,” he said.

Utility affordability has become such a concern that state regulators primarily will want to see tangible customer savings, said Paul Patterson, an analyst with Glenrock Associates. The companies are clearly aware of this priority, he added, based on their promise to offer $2.25 billion in consumer credits across Virginia and the Carolinas.

Consumer advocacy group Clean Virginia said it is skeptical of the business combination and is urging state and federal regulators, the governor, attorney general and lawmakers “to subject the proposed merger to the most rigorous scrutiny possible.”

“One-time credits are a down payment on political goodwill, not a guarantee of affordability,” said Brennan Gilmore, executive director of Clean Virginia, in a statement.

Capital spending plans for a group of investor-owned utilities are estimated to reach $1.4 trillion for the next five years, according to a recent report from the consumer education group PowerLines. The record levels of capital investments are being driven by new demand on an aging electricity system that has faced repeated storm damage.

Unlike other large customers, new AI data centers can consume the same amount of electricity as an entire city, while guzzling power around the clock. Beyond AI, many utilities are trying to keep up with growth in manufacturing, electric vehicles and residential markets, too.

“This is a time for companies to bulk up because the spending is going up so much,” said John Bartlett, president of Reaves Asset Management, which invests in the sector. For Dominion, increased capital spending will be easier as part of a larger company, he said.

Utilities have attracted investment from infrastructure funds and private equity in recent years, and have been raising money for needed investments with at-the-market share sales.

Bartlett said utility acquisitions are fairly straightforward and that the combination of the two companies could benefit customers, but NextEra must prove it.

“The onus is definitely on NextEra to show the value proposition and what’s in it for rate payers, and that’s important,” Bartlett said.

NextEra has seen acquisition plans fail at the state level before.

In 2016, Hawaii regulators rejected its $4.3 billion bid to buy the state’s biggest utility, Hawaiian Electric, unconvinced it would have benefited utility consumers or helped the state achieve its aggressive goal to become more energy sufficient.

The following year, Texas regulators rejected NextEra’s bid for Oncor, one of the largest electricity transmission businesses in the country that at the time was being sold as part of a bankruptcy case.

Despite the “suboptimal” track record, “we think this time is different,” said Julien Dumoulin-Smith, analyst at Jefferies, in a client note.

FERC will consider market concentration, possibly in New England, where both companies have assets, or in the PJM Interconnection, the country’s largest electricity market, which includes Data Center Alley, analysts said. The NRC will focus on the safe operations of reactors. Both companies already own and operate nuclear plants.

The companies say the deal is expected to close within 18 months, a timeline that analysts say is possible but optimistic. Executives are expressing confidence in their ability to get through the regulatory hurdles. The deal includes a $4.8 billion termination fee that NextEra would pay if regulators block the deal.

NextEra Chief Executive John Ketchum told analysts that the companies will enter the regulatory process with “no asks,” meaning they aren’t asking commissions to approve new power plant investments.