Washington D.C. — This week Pennsylvania Governor Josh Shapiro sent a letter to utility leaders across the Commonwealth laying out three requirements for future rate case proposals, including a demand that utilities justify their return on equity through competitive, transparent market-based processes. The American Economic Liberties Project released the following statement applauding this commonsense move.

“Governor Shapiro just did what state and federal regulators have refused to do for decades: tell utility monopolies that the era of guaranteed excessive profits at ratepayers’ expense is over,” said Mark Ellis, Senior Fellow at the American Economic Liberties Project. “His letter endorses a principle at the core of our research: Utility returns should reflect the actual market cost of capital, not inflated administrative guesswork that enriches Wall Street at the expense of every household, business, and organization served by an investor-owned utility in the country.”

Last year alone, 13 Pennsylvania utilities requested $975 million in higher rates after earning a combined $1.4 billion in profits in 2024, according to Governor Shapiro’s letter, which establishes three new benchmarks his administration will use to evaluate future rate requests.

• Utilities must favor lower-cost debt over expensive equity when raising capital. Any equity share exceeding what a utility’s parent holding company employs will require “extraordinary justification.”
• Utilities must explain in plain language why proposed investments are necessary, showing specific reliability or safety benefits with transparent data, and must disclose how much of a rate increase will go to shareholder dividends versus customer needs.
• Utilities must justify their requested return on equity through a competitive, market-based process or accept a return that does not exceed the 10-year U.S. Treasury yield plus the five-year median equity risk premium as published by the Federal Reserve.

Governor Shapiro’s approach aligns directly with reforms recommended in Economic Liberties’ issue brief, “Rate of Return Equals Cost of Capital: A Simple, Fair Formula to Stop Investor-Owned Utilities from Overcharging the Public,” which found that utility returns on equity are routinely set well above the market cost of capital.

“Governor Shapiro is proving that the fight to rein in utility monopolies is happening at every level of government,” said Nidhi Hegde, Executive Director of the American Economic Liberties Project. “Between this letter and the Lowering Utility Bills Act introduced in Congress, the message to utility monopolies is clear: the days of unchecked profit extraction from captive customers are numbered.”