RE:RE:RE:RE:RE:BUY NOWbmbruce wrote: imo..we also have to consider the real possibility of continuing inflation and weak growth going forward... in such an enviroment utility companies may face challenges getting meaningful ROE increases approved by regulators wary of exacerbating recession risks and reduced consumer purchasing power… utility companies will need to justify moderate ROE adjustments as critical for investment and reliability… any increases granted may remain gradual and limited, as regulators balance economic stability against inflation's impact on utility capital costs...
That's not how regulated utilities work. Regulators approve rates based on ROE required to keep investors investing in the infrastructures. In its most simple term, a utility is a financial arrangement where costs are passed as is to the customers with allowed return on investment at long term bonds rate + implied risk premium. Regulators can't disallow costs, they can only push them backwards (and they still pay ROE while being pushed back), which can have the snowballing effect of quicker rate increases. The only argument the regulator has to limit ROE increases is to argue that inflation and rate increases are temporary, otherwise they would pretty much go against the "law" (in other words, they would go against pretty much every reference decisions ever made in history).
In the current context, utilities are more likely to offer pushing back rate increase (as it basically increases total returns over time) with ramped up ROE effective immediately, while the regulators are more likely to want to make sure as little costs as possible get pushed back further to limit the snowball effect. Also, keep in mind that most of the price for the customer is the pass-through of commodity costs (often more than 70% of the cost of the customer), so a rate increase for distribution services of 15% to reflect higher general costs and higher ROE should be an overall cost increase of less than 5% for the customer at stable commodity prices.
I say this from experience since I've been doing filings to natural gas regulators for years and I have gone through a ton of rate case.