A new paper from Concentric examines how return on equity (“ROE”) affects customer bills and electric utilities’ ability to finance grid investments.
Investor-owned utilities finance infrastructure through a combination of debt and shareholder equity. Regulators review utility costs and investments, set customer rates, and establish an authorized return on shareholder equity. This regulatory framework is intended to enable utilities to attract the capital needed to finance infrastructure while protecting customer interests.
The paper finds that policy-driven reductions in authorized ROE could increase utilities’ cost of capital, outweighing the minimal near-term savings for customers.
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All views expressed by the author are solely the author’s current views and do not reflect the views of Concentric Energy Advisors, Inc., its affiliates, subsidiaries, related companies, or clients. The author’s views are based upon information the author considers reliable at the time of publication. However, neither Concentric Energy Advisors, Inc., nor its affiliates, subsidiaries, and related companies warrant the information’s completeness or accuracy, and it should not be relied upon as such.
