TFTT Report

Protecting Return on Equity to Secure Safe, Reliable Water Infrastructure

Delivering clean, safe drinking water requires continuous investment. From replacing aging pipes and upgrading cyber defenses to meeting federal mandates for lead line removal and PFAS filtration, water utilities face massive capital requirements. However, public frustration over rising energy costs has fueled political pressure to target utility Returns on Equity (ROE) as a scapegoat.

Rhetoric often mischaracterizes ROEs as “excessive corporate profit,” leading to proposals to cap or slash returns. This strategy misunderstands utility finance and puts critical infrastructure at risk. ROEs area vital metric that allows water utilities to attract private capital in competitive global markets.

To help member companies explain to key stakeholders why suppressing ROEs is a bad policy decision, NAWC and Truth from the Tap created a new backgrounder that lives in the Truth from the Tap toolkit titled, “Return on Equity Proposals: Protecting Water Infrastructure Capital for Reliable Service and Public Health.” This resource equips water companies with clear talking points on why competitive returns are essential to attracting private capital, protecting credit ratings and preventing higher long-term costs for customers.

The new backgrounder details reasons why suppressing ROEs is a bad idea:

• Leads to Higher Borrowing Costs for Ratepayers: Suppressing ROEs can lead to credit rating downgrades. Because utilities must legally meet safe drinking water standards, they are forced to borrow at higher interest rates. Customers ultimately pay for these elevated borrowing costs through higher bills.
• Creates Dangerous Long-Term Liabilities: When utilities cannot attract low-cost capital, vital maintenance gets delayed. Deferring capital investments simply pushes physical and financial liabilities into the future, leading to main breaks, service outages, and costly emergency repairs.
• Rate-Setting Belongs with Independent Experts: Rate decisions belong with independent, transparent, evidence-based utility regulators, not political legislative mandates that erode investor confidence.
• Hampers Capital Programs: Often, retained earnings are reinvested into a utility’s infrastructure replacement program, providing easily accessed capital. Reducing ROEs would force utilities to finance more infrastructure improvements using outside capital.

Download the new resource here.