Analysis: Reduction in Utility ROE Could Increase Long-Term Costs

MARLBOROUGH, Mass., Nov. 5, 2026 /CourierPR/ -- Concentric Energy Advisors, a leading management consulting firm for the North American energy and water industries, has released a new analysis highlighting the potential long-term costs associated with reducing utility returns. The study, which examines the impact of changes in authorized return on equity (ROE) on customer bills and utility financing, reveals that such reductions could lead to higher costs for customers in the long run.

According to the research, the equity return associated with authorized ROE represents approximately 5 percent of the total electric bill. A 100-basis-point reduction in authorized ROE would lower the typical customer bill by less than 1 percent. Even the largest ROE reduction modeled in the analysis would alter the typical customer bill by about 2 percent. These findings suggest that changes in authorized ROE alone would have a relatively limited effect on the total customer bill.

The paper also explores how changes in ROE and capital structure can affect utility financing costs. If reductions in ROE are not accompanied by corresponding reductions in capital costs or utility risk, the analysis finds that some near-term customer savings could be offset by higher financing costs over time. This is due to the fact that investor-owned utilities finance infrastructure through a combination of debt and shareholder equity, and regulators set customer rates based on an authorized return on shareholder equity.

The analysis underscores the importance of maintaining a balance between customer affordability and the need for utilities to attract the capital necessary to finance infrastructure. Electric utilities' earned returns and total shareholder returns are comparatively modest, despite being nearly three times as capital-intensive as the typical non-utility company. Utilities also must repeatedly access external capital because their investment needs exceed the cash they generate internally.

Concentric Energy Advisors' research is intended to provide a clearer understanding of the role of authorized ROE within the broader affordability discussion. Customer bills reflect numerous factors that vary by utility and jurisdiction, while actual financing outcomes depend on market conditions, regulatory decisions, capital structure, utility-specific risk, and the timing of investment. The paper evaluates changes in ROE as one component of customer costs and considers both their direct effect on bills and their potential implications for financing costs over time.

This analysis offers valuable insights for policymakers, regulators, and utility companies as they navigate the complex landscape of utility financing and customer affordability. By focusing on the actual drivers of rising costs, stakeholders can develop more effective strategies to ensure that utilities can continue to provide essential services while keeping bills affordable for customers.