States Target Utility Return On Equity Amid Affordability Backlash

✓What's documented Named, on-record consumer advocate (Maryland OPC's David Lapp) and cited LBNL research, not a blog take.

As electricity affordability becomes a bigger political flashpoint, several states are moving to cut utilities' guaranteed return on equity, the profit margin baked into every rate case. Pepco's pending Maryland rate case, where the utility is seeking a 10.5% ROE (up from 9.5%) and a roughly 23% distribution rate increase, is the case regulators and consumer advocates are watching most closely. A higher ROE gives utilities an incentive to build more infrastructure, including the generation and transmission capacity data centers require, since that base is what earns the return.

• Pepco is seeking a 10.5% allowed ROE in Maryland, up from its current 9.5%, which the state's Office of People's Counsel says would raise distribution rates about 23% on a weighted basis.
• OPC head David Lapp argues Pepco is "investing too much too fast" in infrastructure that could have been deferred, and says cheaper Exelon debt is being routed through Pepco as costlier equity to inflate the effective ROE.
• Lawrence Berkeley National Laboratory research cited in the piece finds investor-owned utilities, about 70% of national electricity sales, charge higher and faster-rising prices than public power utilities without a profit motive.
• Protesters disrupted a Las Vegas conference of investor-owned utility executives last month over high electricity costs, cited as a sign of mounting public pressure on utility profit margins.