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

This briefing by RMI argues that high rates of return on equity (ROE) for regulated utilities hinder the energy transition by incentivizing capital-intensive projects over efficiency, increasing costs for consumers, and making utilities less competitive than third-party renewable developers.

• High ROEs create a "capex bias" where utilities prioritize capital expenditures, such as building power plants, over operating expenses like energy conservation and efficiency improvements because they earn profit on the former but not the latter.
• 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 developers, who operate on lower market-aligned returns, thereby slowing the deployment of decarbonization technologies.
• Aligning utility ROEs with competitive markets and the actual cost of capital would encourage utilities to facilitate the energy transition, as they would be less resistant to renewables if they could profitably own them.

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} }