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

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  • Yozwiak, Madeline

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.

Suggested Citation

  • Yozwiak, Madeline, 2023. "Calculating the realized investment returns of U.S. electric utilities," Utilities Policy, Elsevier, vol. 85(C).
    • Handle: RePEc:eee:juipol:v:85:y:2023:i:c:s0957178723001960
    DOI: 10.1016/j.jup.2023.101684
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    References listed on IDEAS

    as
    1. Severin Borenstein & James Bushnell, 2015. "The US Electricity Industry After 20 Years of Restructuring," Annual Review of Economics, Annual Reviews, vol. 7(1), pages 437-463, August.
    2. Steve Cicala, 2022. "Imperfect Markets versus Imperfect Regulation in US Electricity Generation," American Economic Review, American Economic Association, vol. 112(2), pages 409-441, February.
    3. Rode, David C. & Fischbeck, Paul S., 2019. "Regulated equity returns: A puzzle," Energy Policy, Elsevier, vol. 133(C).
    4. Meredith Fowlie, 2010. "Emissions Trading, Electricity Restructuring, and Investment in Pollution Abatement," American Economic Review, American Economic Association, vol. 100(3), pages 837-869, June.
    Full references (including those not matched with items on IDEAS)

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