Lawmakers Aim to Cut Utility Returns

The price of electricity has risen faster than inflation since 2022, and the U.S. Energy Information Administration (EIA) expects that trend to continue through 2026.

In the past year, the cost of electricity has jumped 5.8%, according to the consumer price index for June 2025, more than double the inflation rate for all goods and services.

But while consumers are feeling the pain, utility companies are profiting. A February report by the Rocky Mountain Institute, a nonprofit, nonpartisan think tank focused on energy issues, found that utilities’ allowed return on equity (ROE)—the rate of profit on capital investments—accounts for 15-20% of their customers’ bills.

To help ratepayers, lawmakers in at least six states have introduced legislation this year to limit utility companies’ ROE.

Pending bills in New York (SB 5687) and Rhode Island (HB 5018) seek to cap utility profit margins at 4%.

Proposals in four other states eschew a hard cap in favor of revised guidance to existing utility regulators:

• Connecticut SB 1531, which would prohibit an electric distribution company from having a rate of return that exceeds the amount of money it has to pay to finance its operations, known as its weighted average cost of capital, as determined by the state’s Public Utilities Regulatory Authority.

• Florida SB 354, which would require the Florida Public Service Commission to keep utilities’ ROE at the “risk-free rate of return,”—the expected return on investment without risk of financial loss—or provide justification for any higher rate.

• Massachusetts HB 3452 and SB 2238, which would prohibit the state Department of Public Utilities from authorizing an ROE higher than the average approved in the neighboring states of Connecticut, Maine, New Hampshire, Rhode Island and Vermont over the preceding four years.

• New Jersey companion measures AB 5436 and SB 4304, which would require the state Board of Public Utilities to “determine and consider” the “lowest reasonable return on equity” before approving rates for electricity, gas or water.

The Connecticut and Florida bills have failed, but the Massachusetts and New Jersey measures are still pending.

Half Dozen States Take Harder Look at Utility Company ROEs

At least six states have introduced legislation this year aimed at limiting the return on equity (ROE) for utility companies, according to the LexisNexis® State Net® legislative tracking system.

No Easy Answers to Rising Prices

An April report by the nonprofit PowerLines, which seeks to lower energy costs by modernizing utility regulations, indicated that nearly 80 million Americans have struggled so much to pay their utility bills that they’ve sacrificed spending on other basic expenses like education, food or health care.

Several factors determine electricity costs, but meeting demand in the moment is eating up a larger portion of the bill. That is a reflection of the country’s aging power grid and updating that is no simple task with transformer shortages, aluminum and steel tariffs and permitting delays on building transmission lines all stymying progress.

As journalist Umair Irfan wrote for the news website Vox, “while prices are rising, there’s no easy way around the fact that the grid is overdue for a lot of necessary, expensive upgrades. For millions of Americans, that means it’s going to get more expensive to stay cool, charged up, and connected.”

In that light, these six bills to curb utilities’ rate of return could be seen as an attempt by legislators to do something for residents who are struggling to pay their bills.

But utility companies also need money to fund clean energy projects, and those could be undercut by a reduction on their returns.

“Private investment is the main driver of transmission expansion and modernization,” Nathan Benedict, director of regulatory strategy for ITC Holdings Corp., an energy company that owns and operates electricity transmission networks, wrote in an article in January.

“An adequate and stable ROE is what attracts private investment to the utility sector,” he stated in the article on Modernize the Grid, a website where ITC Holdings advocates for new transmission policies. “Without an adequate and stable ROE, investors will be far less interested in investing in our nation’s power grid, leaving the reliability of the grid exposed.”

Indeed, as energy market strategist Coley Girouard wrote more than a decade ago, “the ROE allowed by a utility’s PUC [public utility commission] is no guarantee. There are many factors that come into play for utilities to turn an allowed ROE into actual profits.”

Writing then for Advanced Energy United, an industry association representing a variety of energy companies, Girouard, now with the electric vehicle manufacturer Rivian, said that while utilities are generally a “lower risk investment,” they are not entirely without risk. As an example, he recalled that Pacific Gas & Electric filed for bankruptcy in the wake of the 2000-01 California energy crisis.

Of course, he wrote that before PG&E filed for bankruptcy a second time nearly two decades later, after its powerlines caused devastating wildfires. The company’s travails illustrate the potential financial perils of the energy business, underscoring the argument for greater ROEs.

Whether reducing those returns becomes a popular reform, much less a successful one, remains to be seen. It appears clear, however, that electricity costs will continue to rise, at least for now.

—By SNCJ Correspondent BRIAN JOSEPH

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