The following post was written by Regulatory Research Associates, a group within S&P Global Market Intelligence. For further information on the full reports, please request a call.
An analysis conducted by Regulatory Research Associates, an offering of S&P Global Market Intelligence, indicates that, similar to the electric and natural gas sector, ROE authorizations for the water utilities covered by RRA have largely trended downward from 2006 through 2016. In the first five months of 2017, this downward trend continued for water and natural gas utilities, while ROEs for electric utilities were largely flat versus 2016 levels.
For cases decided in the first five months of 2017, the average ROE authorized for water utilities was 9.43%, as compared to 9.68% for cases decided in calendar year 2016. By comparison, the average ROE approved in cases decided for natural gas utilities in the first five months of 2017 was 9.44%, compared to 9.50% in 2016. Including returns utilized in limited issue rider cases, electric utilities were authorized an average ROE of 9.77% in cases decided in the first five months of 2017, comparable to 2016 results.The following graph, shows the historical ROE trend of the three utility sub-sectors. While, as noted above, the authorized ROEs for all three sectors have declined since 2006, the authorized ROE for electric utilities has trended higher than the natural gas and water utility sectors, due in part to the authorized ROEs for electric companies including generation assets, which are generally accorded higher returns than lower-risk delivery assets.
The water and natural gas ROEs have trended more similarly. What appears to be a recovery from 2014 to 2015 in the water utility authorized ROE, exposes the challenges that can come with a limited dataset. The 2014 average includes three New York rate decisions of 9.2%, a state that tends to authorize ROEs below the national average.
In contrast, the 2015 water ROE average includes two relatively high ROEs, 10.0% and 10.1%, approved in states with a small water footprint: Maryland and Hawaii. The combined rate base approved as part of these two decisions totaled less than $25 million. Excluding these outliers, the ROE trend line for water utilities would appear a bit smoother.
Already a client? These trends are examined in greater detail in a Water Major Rate Case Decisions report, where RRA examines the results of over 200 rate case proceedings currently accumulated, spanning a time period between January 2006 and May 31, 2017.