A Look at US Utilities’ Return on Equity

The regulatory return on equity (or ROE) is a combination of the cost of repaying debt in addition to the return utilities offer to their equity shareholders. Ultimately, allowed ROE is the only part of the revenue requirement that utilities retain as profit.

The chart above indicates the three-year average consolidated ROE of the top US utilities. Duke Energy’s (DUK) adjusted return on equity stayed below 8% due to volatile earnings from international operations. This ROE was on the lower side of the industry average.

PPL Corporation (PPL) generally has a higher consolidated ROE due to its extensive operations in the UK.

Exelon (EXC) has had consolidated ROE of a little more than 9%. However, it was more than 20% in 2011. Exelon’s ROE experienced a sharp fall due to tighter margins, driven by falling wholesale power prices. It also fell due to goodwill acquired in its takeovers.