New Aii Report Finds Utility ROEs Have Trended Downward Over Two Decades, Challenging Claims That Returns Are Driving Electricity Bills

Report warns that blunt ROE caps and politicized ratemaking could undermine long-term grid investment, reliability, and customer protection

WASHINGTON, July 7, 2026 /PRNewswire/ -- The Alliance for Innovation and Infrastructure (Aii) today released a new research report, Ratemaking for a Reliable Grid: Return on Equity, Capital Attraction, and Customer Costs in a Changing Electric System, examining how utility ratemaking, return on equity (ROE), cost allocation, and capital attraction affect electric reliability and long-term customer costs.

The report finds that both requested and authorized electric utility ROEs have trended downward rather than upward over the past two decades. Even as electricity demand, data center growth, electrification, and grid investment needs rise, the report concludes that ROE does not appear to be a source of upward pressure on utility bills.

"Electric utility ratemaking is often reduced to slogans about profits or overcharging, but the actual system is far more complex," said Benjamin Dierker, Executive Director of Aii and coauthor of the report. "ROE is one component of ratemaking, not the whole bill. Policymakers should focus on facts, incentives, constraints, and long-term outcomes rather than blunt reforms that may appear attractive in the short term but weaken the system over time."

The report explains that utility ratemaking is designed to balance customer protection, financial integrity, and the need to sustain reliable electric service. It cautions that proposals to cap ROE or replace case-specific regulatory judgment with fixed formulas could reduce regulatory stability and make it harder or more expensive to finance needed grid investments.

Key findings include:

• Requested and authorized ROEs have declined over the past two decades. Aii's review finds that the long-term trend runs counter to claims that utility ROEs have moved systematically upward.
• Recent rate cases do not show broad upward movement in authorized ROE. In 69 electric utility rate cases since 2020 with data for current and previous ROE, authorized ROE increased in only 20 cases, or 29 percent.
• ROE is not applied to an entire utility rate base. Because utilities finance infrastructure through both debt and equity, ROE applies only to the equity portion of capital structure. The debt portion is recovered separately through the authorized cost of debt.
• Authorized ROE is not guaranteed profit. The report distinguishes requested ROE, authorized ROE, and earned ROE, emphasizing that utilities are given an opportunity to earn a regulated return, not a guaranteed outcome.
• Blunt ROE caps may create long-term cost risks. The report evaluates recent proposals to constrain ROE and warns that formulas tied too closely to debt-market benchmarks may fail to reflect the risk-bearing nature of equity capital.
• Weakened credit metrics can affect customers. If utilities face higher borrowing costs or reduced financing flexibility, those costs can affect the pace, cost, and reliability of needed infrastructure investment.
• Cost allocation is central to customer protection. As data centers and other large-load customers expand, properly designed tariffs and cost-allocation rules can help ensure that ordinary customers are not asked to subsidize infrastructure built for customers with very different usage patterns and system demands.

The report uses recent policy debates in Pennsylvania and Connecticut to illustrate how ratemaking reforms can move from consumer-protection rhetoric into questions of cash flow, credit conditions, financing flexibility, and long-term infrastructure readiness. It also highlights the importance of large-load tariffs as states confront data center growth and increased demand on the grid.

"Customers deserve to be protected, especially in this high-demand infrastructure environment," said Owen Rogers, Policy Analyst at Aii and coauthor of the report. "But customer protection depends on prudent policy that balances real world needs for consumers today and well into the future relying on the same grid infrastructure. The current summer season proves how essential it is that utilities have the resources they need to invest in the grid and deliver reliable energy across our nation."

The report concludes that the existing ratemaking framework remains the strongest foundation for aligning customer protection with the financial and operational conditions needed to sustain electric service. Rather than replacing evidence-based review with blunt constraints, Aii recommends reforms that strengthen regulatory discipline, transparency, cost allocation, and long-term infrastructure planning.

The full report is available at Aii.org.

Ratemaking for a Reliable Grid:

Return on Equity, Capital Attraction, and Customer Costs in a Changing Electric System

https://www.aii.org/wp-content/uploads/2026/07/Ratemaking-for-a-Reliable-Grid.pdf

About the Alliance for Innovation and Infrastructure

The Alliance for Innovation and Infrastructure (Aii) is an independent, national research and educational organization working to advance innovation across industry and public policy. Aii explores the intersection of economics, law, and public policy in the areas of climate, damage prevention, eminent domain, energy, infrastructure, innovation, technology, and transportation.

Contact: Benjamin Dierker
[email protected]

SOURCE Alliance for Innovation and Infrastructure