3 Reasons Why Climate Players Should Care About Utility Rate of Return

The briefing examines how high returns on equity (ROE) for regulated utilities hinder climate progress by incentivizing capital-intensive projects over energy efficiency, increasing the overall cost of the energy transition, and making utilities less competitive than third-party developers in procurement processes. It suggests that aligning ROEs with market conditions would lower costs for consumers and reduce utility resistance to renewable energy adoption.

• High returns on equity (ROE) create a "capex bias," where utilities are incentivized to invest in capital expenditures, such as building power plants, rather than cost-effective operating expenses like energy efficiency or conservation, because they only earn profit on the former.
• Reducing the allowed ROE for utilities can significantly lower energy bills for consumers; a 1 percent reduction in ROE is estimated to save customers nearly $4 billion annually across the United States.
• Inflated ROEs (ranging from 8 to 10 percent) make regulated utilities less competitive than third-party renewable energy developers, who operate on lower market-aligned returns, thereby slowing the deployment of decarbonization technologies.
• Regulated utilities are a critical factor in the energy transition because they are responsible for 30 percent of total carbon emissions.

APA

RMI (2024). 3 Reasons Why Climate Players Should Care About Utility Rate of Return. https://rmi.org/resources/3-reasons-why-climate-players-should-care-about-utility-rate-of-return/

Chicago

RMI. 3 Reasons Why Climate Players Should Care About Utility Rate of Return. 2024. https://rmi.org/resources/3-reasons-why-climate-players-should-care-about-utility-rate-of-return/.

Wikipedia

{{cite report |author=RMI |title=3 Reasons Why Climate Players Should Care About Utility Rate of Return |date=22 April 2024 |url=https://rmi.org/resources/3-reasons-why-climate-players-should-care-about-utility-rate-of-return/ |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{rmi2024reasons, author = {{RMI}}, title = {{3 Reasons Why Climate Players Should Care About Utility Rate of Return}}, institution = {RMI}, year = {2024}, month = apr, url = {https://rmi.org/resources/3-reasons-why-climate-players-should-care-about-utility-rate-of-return/}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }