How Utilities Spend Your Money –

I am working on an Energy Literacy post on electric bills and rates, which is taking longer than expected. In the meantime, I recently tripped over two reports that will serve as a quick and hopefully thought-provoking introduction, looking at utility costs and consumer benefits.

The Edison Electric Institute — the trade association for the country’s big corporate utilities — has issued its 2024 Financial Review, which has a lot to say about just how profitable these companies are.

A few topline facts and figures:

• EEI boasts that these corporate or investor-owned utilities — IOUs in industry speak — invested a record $178.2 billion last year “to make the energy grid smarter, stronger, cleaner, more dynamic, and more secure.” 

• More than $30 billion of that total, or about 16%, went to “adaptation, hardening, and resilience projects.”

• And, according to figures from the U.S. Census Bureau, the IOUs’ capital expenditures are “higher than any other sector in the U.S. economy, outpacing transportation, retail, and other capital-intensive industries.”

Now, why this is important, and what the report doesn’t say, is that utilities use those capital expenditures to build things — big things like new poles, wires and power generation — that they charge back to their customers through their electric rates. (For an explainer on IOUs and other types of utilities, see my Energy Literacy post.)

The industry terminology for all this is that the utilities get to put these capital expenditures into their rate base, which they then divvy up between all their customers as part of your electric bill. The more they can legitimately claim for their rate base, the more you pay and the more profitable they are. 

The report doesn’t say any of this because it is targeted at investors and industry analysts who implicitly understand that particular bit of subtext. 

Which brings us to some other interesting facts and figures in the report.

The 38 utilities covered here — many of which own multiple regional electric utilities — filed 81 rate reviews with public utility commissions in 34 states last year, which likely means 81 requests for some kind of rate increase. 

It takes an average of close to nine months, and sometimes longer, to get approvals on such cases, so EEI reports that 79 rate cases in 32 states were actually decided – again, likely with some kind of rate increase. What if any overlap exists between cases filed and approved is not specified.

What is specified is that while utilities generally asked for more, they were granted an average return on their investments of just under 10%, which is why they generally are considered solid investments. (See EEI graphic above.)

According to EEI, shareholder dividends from the 38 utilities increased by 5.5% in 2024, to a record total of $34 billion. Further, utilities led all U.S. business sectors in dividend payouts.

‘It’s time to shift the focus’

So, IOU shareholders are clearly getting their money’s worth, but what about their customers?

People’s Counsel David S. Lapp of Maryland, the state’s chief consumer advocate, has some concerns about that. 

A new analysis from the state’s Office of People’s Counsel, recently submitted to the Maryland Public Service Commission, argues that increased capital spending does not necessarily translate to better system reliability or resilience.

Most of Maryland’s utilities currently meet or exceed industry standards for reliability, the OPC says. “But those capital investments [in reliability] come with diminishing returns, meaning that customers pay more for each infinitesimal gain in conventional reliability metrics. Despite their top performance, utilities have advocated for even higher reliability standards and used those standards to justify more capital investments.”

The problem, the report says, is that conventional industry standards are focused more on reliability — short, day-to-day outages on a system — as opposed to resilience, the ability of a system to bounce back after longer outages caused by an emergency or extreme weather. But as climate change increases the frequency and severity of extreme weather events — and the power outages they cause — customers are more concerned about resilience, the analysis says. 

“The data calls into question whether the utilities’ ongoing high levels of spending on capital infrastructure is producing meaningful benefits for customers,” Lapp said in a press release on the report. “It’s time to shift focus to more targeted and lower-cost measures like vegetation management that can more meaningfully address customer concerns about outages due to major weather events, while curbing growing electric utility rates.”

The Maryland PSC, which oversees utilities’ performance on reliability, needs a broader view, the OPC says. “The commission’s evaluation framework should weigh the costs and benefits of capital investments given the diminishing benefits per dollars spent, expand the metrics utilities are required to report to include resiliency metrics, and prioritize low-cost strategies that promote resilience, like vegetation management.”

The catch here is that vegetation management — for example, trimming back tree branches to reduce outages in a storm — is classified as an operational and maintenance expense, which can not be included in a utility’s rate base.

Which may be why many utilities tend to skimp on such investments, and why, in looking at utility bills, consumers need to understand not only how much they are paying, but how their dollars are being invested. What’s going into the rate base?

I did send a question to EEI, asking what percentage of its members’ $178.2 billion in capital expenditures ended up in their rate bases. I did not get a direct answer, but was referred instead to other sections of the report that track how much new generation the utilities reported last year and how much they have planned or under construction.

The encouraging news here is — despite President Trump’s war on clean energy — EEI utilities put a record amount of solar and wind online last year, just under 35 GW, along with 11.5 GW of energy storage. Clean energy under construction includes 39.6 GW of solar, 19.5 GW of wind and 21.9 GW of storage.

Less encouraging, natural gas plants are trending up. The IOUs put 2.4 GW of new gas-fired plants online in 2024 and have 8.8 GW under construction.

While any new power generation would be included in a utility’s rate base, not all utilities own power plants. For example, Exelon, one of the utilities in the EEI report, owns Pepco (D.C. and Maryland), Baltimore Gas and Electric, Atlantic City Electric, Delmarva Power and Commonwealth Edison — none of which own any power plants.

What all this means is that utilities don’t like anyone to know exactly what they are putting in their rate bases. The applications for rate increases they submit to their respective state utility commissions are, in some cases, hundreds of pages long and choked with industry and legal jargon. They may also have certain “proprietary” information not included for public view. 

Utilities don’t want you to understand your electric bill; they just want you to pay it. Industry gadflies like David Lapp believe consumers deserve more transparency, more accountability and more power to determine how their utilities spend their money.

Knowing how to read your electric bill is a first step — coming next week.