Volts Are utilities making too much money?
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Feb 11, 2026 
Joe Daniel, an RMI energy policy expert on carbon-free electricity, explains utility regulation and how returns are set. He breaks down ROE versus cost of equity and why authorized returns often exceed market costs. They explore benchmarking problems, procurement evidence, and reform options like market-based finance and Totex, plus political barriers to change.
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ROE Drift And The Historical Risk Premium
- Multiple studies show utility ROEs have drifted away from low-risk benchmarks since the 1980s, creating a persistent risk premium.
- That premium peaked around 2020, indicating ample 'fat' existed to trim returns without damaging investment.
The Utility Home Court Advantage
- Utilities enjoy a 'home court advantage' by choosing when to file rate cases and controlling information flow to regulators.
- That timing and information asymmetry helps explain why ROEs have drifted upward over time.
Peer Referencing Drives Up ROEs
- Some regulators set ROE by referencing peer commissions' awards, which creates an upward drift as commissions copy one another.
- Using peer-based ROE benchmarks perpetuates inflated returns across jurisdictions.