- Investor-owned utilities are earning roughly 10% on equity versus an estimated 7-8% cost of equity, a spread that adds about 5% to a typical electricity bill and makes allowed returns the easiest number for regulators to cut.
- Every 1 percentage point cut in allowed return on equity cuts utility common-stock earnings by about 10% and can drive a 20-30% decline in sector valuation multiples.
- The Fed raised its discount rate and 10-year Treasury yields hit 5%, their highest in almost two decades, lifting utility capital costs and adding to affordability pressure that pushes regulators to cut equity risk premiums.
- South Africa's central bank is expected to raise interest rates to defend its 3% inflation target despite sagging domestic growth, with persistently high energy prices as the driver.
Quotes
“it seems like inflation is back, baby.”
“Every one percentage point off return on equity cuts earnings for common stock by 10%.”
“Utilities may currently be earning above their theoretical cost of equity, with returns around 10% versus an estimated 7–8%, potentially adding roughly 5% to typical electricity bills.”
“South Africa’s central bank is widely expected to raise interest rates to defend its 3% inflation target amid persistently high energy prices”