The cost of electricity has become a hot-button issue in the 2026 election, and politicians have pointed their fingers at any number of culprits to avoid responsibility. Some progressive activists contend that grid investments by utility companies are primarily motivated by a desire to increase profits rather than to serve customers. However, that narrative ignores the reality that improving our grid is essential to strengthening reliability and supporting economic growth.
The heavily regulated utility industry is not in any position to gouge its customers, and there’s no evidence that utility profits have increased in the last few years. The reality is that setting electricity rates is a very complex process that involves weighing customer protection and future investment, and any rate increases are done only with the approval of public utility commissions.
At the center of the debate are private utility companies’ returns on equity, or how much profit they are allowed to earn from providing services. A sufficient ROE helps attract capital to invest in the grid (that is, the poles, wires, and substations) to increase reliability and access. If providing electricity generates no ROE, then private investors — who provide the capital needed to run utility companies — would withdraw their money, leaving us with a deteriorating grid.
To set the rate, a utility submits a “requested” ROE, which reflects what it thinks is necessary to attract investors and allow future investment beyond maintenance costs. Regulators typically counter with an “authorized” ROE, or how much is believed to be just and reasonable for utility companies to earn while protecting customers.
However, an “authorized” ROE does not guarantee a profit. If interest rates change or natural disasters occur, the “earned” ROE can quickly turn negative — and does so quite often. When accounting for both debt and equity together, the average rate of return for electric utilities comes out to 7.6%.
For context, the ROE for grocery stores and food retail averages nearly 13%, and it exceeds 26% for general retail.
A healthy, stable ROE supports continued investment and protects customers, and the notion that returns on electricity investment are price gouging Americans is simply misguided. Household expenditure on electricity, as a share of personal expenditure, was just 1.25% in 2025, an all-time low. Since 2000, both what utilities have asked for and what they’ve actually been authorized to earn have trended downward, not upward.
Further, when investor-owned utilities return lackluster profits, it hurts their credit rating. Utilities often rely on debt funding to provide services, and higher financing costs mean that providing electricity becomes more expensive, which can affect the pace, cost, and reliability of grid investment, as well as consumer rates.
Connecticut provides a case study for what downgraded credit means for utility providers. In 2020, its legislature enacted a law that severely constrained investor-owned utility providers’ ability to earn a return. Predictably, Connecticut providers saw depressed ROEs and subsequently had their credit ratings downgraded. This led to a reduction in utility investment in the state, which, in turn, has created concerns about the long-term reliability of the state’s grid.
In June, the Pennsylvania General Assembly unanimously passed a law that would peg all investor-owned utility ROEs to the 10-year Treasury Note plus 2%, which would result in a perpetual 6% to 7% “authorized” ROE. The Pennsylvania Public Utilities Commission warned that this artificial cap might limit the ability of the system currently in place to both protect consumers and maintain profits.
Short-term, politically motivated efforts to reduce consumer electricity costs can actually increase consumer bills in the long run by reducing the capital available for investment, and leave a utility unable to maintain the grid’s reliability.
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This is of enormous concern right now, as future electricity demand is projected to skyrocket due to new domestic manufacturing and artificial intelligence computing. The grid will only become more stressed with these advancements, and reducing utility companies’ ability to reinvest will invariably result in an increased occurrence of blackouts or brownouts, where power is shut off to customers simply because the infrastructure isn’t there. For instance, a recent study I wrote with my colleague Russ Kashian on the Northern Virginia power grid found that data center construction in the area is outpacing electricity capacity and grid investment and could lead to higher prices or reliability issues — as we saw over the Fourth of July weekend — if grid investment is delayed.
Investor-owned electric utilities invested nearly $93 billion in 2024 on transmission and distribution and have another $178 billion planned in the next two years. If we want a reliable grid that delivers electricity at affordable rates while investing in the future, regulators should look past gimmicks, such as constraining ROE, that will reduce investment in the grid and could actually raise customer bills.
Ike Brannon is a senior fellow at the Jack Kemp Foundation.