Once-public-minded electric utilities have shifted from serving customers to maximizing profits—at the expense of reliability and affordability. That’s the conclusion of a recent paper from Mark Ellis for the American Economic Liberties Project.
Originally granted monopoly status in exchange for stable, low-cost electricity, these utilities are now gaming the system, driving up costs while delivering less. The result? A weaker, more fragile grid and higher bills for consumers. In the paper, Ellis calls for a reset, arguing that competition and accountability must replace outdated monopolistic models to ensure a resilient and fair electricity market.
Ellis, formerly a chief economist at Sempra Energy and now a senior fellow at the American Economic Liberties Project, argues that these elevated ROEs result in utilities earning returns significantly above their actual cost of equity. This discrepancy incentivizes overinvestment in infrastructure, burdening consumers with unnecessary rate hikes. Ellis estimates that such practices cost utility customers approximately $50 billion annually, translating to about $300 per household.
In response to these concerns, Florida State Senator Don Gaetz has introduced Senate Bill 354, aiming to align utility shareholder profits more closely with the yields of 10-year Treasury notes. The proposed legislation mandates regulators “work to keep’ each utility’s ROE near the rate of these relatively risk-free government securities. Given that 10-year Treasury yields are currently less than half of the ROEs approved for utilities like Tampa Electric and Duke Energy Florida, his bill could substantially reduce allowable utility profits. Additionally, the bill seeks to enhance regulatory oversight by expanding the Florida Public Service Commission from five to seven members, requiring financial expertise among commissioners, and mandating detailed disclosures of utility executive compensation.
Worth your time: Matt Stoller over at Big has a deeper dive into the misaligned incentive structure that is costing utility customers big bucks.