Allowed Return on Equity
The regulatory ceiling on what a regulated utility's equity can earn on its rate base, set by the state public utility commission (PUC) during periodic rate cases. Typical 2024-2025 range: 9.0% to 10.5% across US state PUCs, with a national median around 9.7%. The regulator's stated objective is to set allowed ROE equal to the utility's cost of capital — so equity investors are willing to fund the next dollar of CapEx without being subsidized. For valuation purposes, the allowed ROE is the load-bearing cost-of-equity anchor for regulated utilities, with CAPM and build-up estimates serving as cross-checks rather than primary inputs.
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Related terms
Absorption Rate · AFFO per Share · Alternative Investments · Anchor Tenant · Assets Under Management · Book Value per Share
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