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Utilities’ Approved ROE in 2016: Consistent with the 30-Year Trend?

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Jan. 5 2017, Updated 10:36 a.m. ET

US utilities: rate case summary

In this part of our series, we’ll take a look at utilities’ ROE (return on equity). Investor-owned utilities filed 11 rate cases in 3Q16, as compared to 27 cases filed in 2Q16. The average regulatory ROE approved in these cases in 3Q16 was 9.8%, whereas in 2016, it was nearly 10%. This approved ROE has been in-line with the 30-year average.

ROE refers to the cost of paying back debt holders with interest and the returns utilities (XLU) provide to their equity shareholders. Ultimately, allowed ROE is the only part of revenue requirements that utilities retain as profit.

US utilities’ approved ROE has been trending downward as interest rates have increased, and so going forward, ROE may fall below current levels as the Fed normalizes rates.

For more details, check out Market Realist’s A Look at US Utilities’ Return on Equity. Continue to the next part of this series for a look at utilities’ regulatory lag in 2016.

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