Regulated Utilities

Utility Rate Base & Capex

How a Dollar of Capex Becomes Earnings

The cost-of-service formula behind every regulated utility, walked through with an illustrative 10 billion dollar rate base. Profits scale with invested capital, not kilowatt-hours sold.

Rate base$10.0B

Net invested capital serving customers: plant in service plus construction work, minus accumulated depreciation. Every prudently incurred capex dollar lands here.

Capital structure50% equity / 50% debt

Commissions set a hypothetical capital structure. Recent US electric averages sit near 50 percent equity.

Return on equity9.7% x $5.0B = $485M

The allowed ROE (2024 US electric average roughly 9.7 percent) applied to the equity share of rate base. This is the profit line.

Return on debt5.0% x $5.0B = $250M

Actual interest cost passed through to customers at cost, with no markup.

Operating costs+ O&M, fuel, depreciation, taxes

Recovered dollar-for-dollar. Fuel typically flows through automatic adjustment clauses with no profit attached.

Revenue requirement= total allowed revenue

The sum becomes the revenue the utility may collect, divided into tariffs per customer class in a rate case.

The growth algorithmrate base growth ~ EPS growth

Grow rate base 7 percent a year at a constant allowed ROE and earnings grow roughly 7 percent, less dilution from new equity. This is why utilities guide to rate base CAGR.

Investor-Owned Utility Capex

Industry capital spending nearly doubled in a decade and set a record 167.8 billion dollars in 2023, with EEI expecting records to continue. Every prudent dollar becomes rate base.

Five-Year Capex Plans by Utility

Announced five-year capital plans from 2024 to 2025 investor updates, rounded. Nearly every plan here has been revised upward as data-center commitments land, so read these as floors.

Net Plant Growth by Utility

Three-year compound growth in net property, plant and equipment, the closest uniformly reported proxy for rate-base growth. Gas LDCs lead on pipe replacement; Sempra is near zero because Oncor is not consolidated.

Gas LDCs sit at the top because pipe-replacement programs grow plant without needing new load. Sempra is near zero because Oncor is not consolidated.

Allowed ROE vs 10-Year Treasury

Commissions cut allowed returns far more slowly than rates fell in the 2010s, then the 2022 to 2024 rate reset compressed the spread by roughly 3 points. That compression is why utilities are asking for higher ROEs in current cases.

EPS Growth Guidance by Utility

Long-term EPS growth targets from investor materials. The sector algorithm is rate base CAGR minus financing dilution; the 6 to 8 percent cluster is the industry standard, with Entergy above it on Gulf Coast load.

Leverage and Interest Coverage by Utility

What the record capex is being funded with. Debt to EBITDA sits between 5 and 9 times across the roster and interest covers barely twice over at most names, which is the constraint every capital plan on this page ultimately runs into.

Coverage under 2x2x to 3xAbove 3x

Bar length is leverage; colour is interest coverage. The dashed line marks 6x debt to EBITDA, around where rating agencies start to press on a regulated utility.

Dividend Payout Ratios by Utility

The dividend measured against both earnings and operating cash flow. Most of the sector sits in the conventional 60 to 70 percent band of earnings; the outliers are the wildfire names, where Hawaiian Electric pays nothing at all and PG&E pays a token amount.

The dashed line marks 70% of earnings, the top of the sector's conventional comfort zone. Where the earnings bar runs far ahead of the cash-flow bar, the cause is usually a depressed accounting year rather than a dividend under strain.

Share Count Change by Utility

How much new equity funded the capex. Hawaiian Electric issued shares after the Maui fires; National Grid ran a 2024 rights issue. A flat bar means the spending was funded without new common stock.

Hawaiian Electric issued equity after the Maui fires. National Grid ran a rights issue in 2024. A flat bar means the capex was funded without new common shares.

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