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By Mike W. Ray
Southwest Ledger
The typical return-on-equity for a public electric or natural-gas utility in Oklahoma today is approximately 9.5%; the national average is 10%.
But with utility rate hikes occurring year after year, many consumers are questioning why ROEs for monopolies such as public utilities aren’t lower.
“There was a time when we held ROE down to about 9.2% – and it was like we stuck a fat hog,” AARP Oklahoma State Director Sean Voskuhl told Southwest Ledger. “Anybody would love to get 9% on their investments and savings accounts.”
A Ledger search on the internet Aug. 7 found interest rates on certificates of deposit ranging from 4.2% for six months to 4.3% for 14 months, to 5.45% for three years. Annual percentage yield on savings accounts ranged from 3.5% to 4.0% to 4.31%.
RMI (Rocky Mountain Institute), a research and advocacy group founded 43 years ago, learned that U.S. Treasury bond returns have been 4.0% to 5.0% per year.
Public utilities “are entitled to earn a reasonable return,” Corporation Commissioner Todd Hiett said. The operative word in that sentence is “reasonable.”
“Let’s not talk about hypotheticals; let’s deal in facts,” Voskuhl said. “Let’s determine what’s fair and reasonable for residential ratepayers. Utilities just want a blank check.”
Hiett, a cattleman, said that if he earned a 9.5% return on investment in his livestock operation, “I’d be a wealthy man.” Instead, “I carry all of the risk.”
Farmers and ranchers are at the mercy of the weather, and the prices for their inputs (such as feed for cattle, seed and herbicide for wheat and cotton) fluctuate wildly.
Newspaper owners across Oklahoma would be ecstatic to experience a 9.5% return on their product – but they earn a mere fraction of that, if even that much. And not one newspaper that’s still surviving in this state has a captive market.
Several years ago a grocer in Muskogee told a journalist that his profit margin was a mere 1%, which was why he had to constantly maintain a high turnover in grocery offerings.
The average return on equity in 2024 for electricity and natural gas utilities was 9.7%, according to S&P Global Commodity Insights.
“I have advocated that the typical ROE is too high,” Hiett told the Ledger. “I think 9.5% is representative of more risk than utilities face.”
Mark Ellis of San Diego, Calif., told a reporter from Inside Climate News that the utility industry is on a path of unsustainable rate hikes. The complexity of utility regulation is concealing the gradual transfer of wealth from utility customers to utility shareholders, he lamented.
According to Ellis, profit is usually 15% to 20% of a customer’s utility bill. RMI calculated that profit amounts to 16.7% of a typical utility bill.
And Ellis knows what he’s talking about. He was employed in the industry for many years – and is a financial analyst with degrees from Harvard University and the Massachusetts Institute of Technology.
Ellis contends 6% would be a fair return on equity for most utilities, because their risks are relatively low and they have a captive customer market.
Hiett said he intends to “advocate for an ROE that is significantly less” than 9.5%, because utilities such as Public Service Co. of Oklahoma, which recently acquired the Green Country power plant in Jenks, “are allowed to start charging their customers” immediately, before that facility is subjected to a comprehensive Corporation Commission rate case and is incorporated into their rate base.
Public utilities are “pushing for ‘construction work in progress’ legislation,” echoed Voskuhl, “and they want to make sure all of these data centers get built. They don’t want to leave out any project they can make money on.”
“If the last Presidential election was decided largely because of the price of eggs, I think Oklahoma ratepayers are paying attention to their utility bills, which also affect their wallets,” Hiett said.
Public utilities are monopolies that have a stable, and usually growing, customer base plus a guaranteed income stream, “so how can they justify a 9.5% return?” he said.
What’s worse, Hiett said, is that quite probably regulators will be expected to raise the ROE for public utilities even higher in the years ahead as more electricity is needed for data centers, artificial intelligence applications, and the myriad vehicles, machines and devices that are powered by electricity.
“It’ll be a win for ratepayers if we can hold onto 9.5%, but… I have to follow the law,” Hiett noted, “even when it rakes ratepayers over the coals.”