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Understanding ROE

The Return on Equity (ROE) for electrical utilities varies, but a common range is between 8% and 12%, with some states like Alabama having higher rates and others like United Illuminating having lower rates. The specific ROE allowed is determined by regulators in each state during rate cases, considering factors like utility cost of capital, customer rates, and the utility's financial viability. Recent data indicates an average ROE of around 9.6% in many rate cases, although this can vary depending on the specific utility and jurisdiction. 

Factors influencing ROE:

Cost of Capital:

Utilities need to attract capital for operations and upgrades, so a reasonable ROE must be sufficient to do so. 

Rate Base:

This is the value of a utility's assets used in providing service, and the allowed rate of return on this base is a key driver of profitability. Public Utility Commissions (PUCs) set the ROE, considering the need to balance utility profitability with reasonable rates for consumers. 

State Regulations:

Each state has its own regulatory framework, so ROEs can vary significantly from state to state. 

Examples:

• Some utilities in the New York state have ROEs in the range of 9.0% to 10.3%, while other utilities have even higher ROEs. 
• Southern California Edison had a 2024 approved ROE of 10.75%, while PG&E and SDG&E also had ROEs above 10%. 
• In New Jersey, a 9.6% ROE was approved for JCP&L in a recent rate case. 

In summary, electrical utilities' ROEs are not fixed and can vary based on state regulations and regulatory decisions. However, a common range of 8% to 12% is often observed, with specific ROEs determined through rate cases to ensure utilities can attract capital while keeping rates reasonable for consumers. 

Georgia Power is capped at 11.08%