Calculating the realized investment returns of U.S. electric utilities

Madeline Yozwiak

Utilities Policy, 2023, vol. 85, issue C

Abstract: Investor-owned utilities in the U.S. are not guaranteed to earn the amount approved by regulators, and actual returns are not trued up against regulated levels. This paper develops a simple metric for firms' actual returns (their “realized” return on investment) that parallels the parameter set in cost-of-service regulation. Based on financial data for 177 major investor-owned utilities over 27 years, the analysis documents a downward trend in companies’ realized returns over the last two decades, from a high of 12.6% in 2002 to 6.1% in 2020, on average (a decrease of over 51%). The decline appears to hold across company size and region of the country and is driven by a stagnation in revenue coupled with a nearly two-fold increase in investment. As a result, changes to utility practices or regulatory policy may be warranted.

Keywords: Electric utility; Cost-of-service regulation; Rate of return regulation; Fixed cost recovery; Rate design (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:juipol:v:85:y:2023:i:c:s0957178723001960

DOI: 10.1016/j.jup.2023.101684

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