The U.S. approach to utility regulation is grounded in two Supreme Court decisions: Hope and Bluefield. These cases set enduring principles for rate-setting by public utility commissions. They emphasized fair valuation of utility assets, the necessity of providing a reasonable return to both debt and equity investors, respect for the expertise of regulatory bodies, and the need to balance private investment interests with public welfare. These rulings came at a time when the federal government actively sought to restrain corporate power and prevent regulatory overreach.
Equity Investors and Commissions Are Obsolete in Today’s Low-Risk Utility Environment
Over time, the power dynamics have shifted dramatically. Utilities today are politically influential and financially secure, reducing the need for protective regulatory oversight. As a result, the idea of abolishing state public utility commissions in favor of broad legislative guidelines has gained traction.
These would better reflect both public needs and market realities. Building on this, there’s a strong case for eliminating equity investors from utilities altogether, as their role no longer appears essential and often results in excessive returns, higher consumer rates, and corporate practices that may not serve the public interest.
Rethinking Utilities as Equity Investors and State Commissions Lose Public Value
The presence of equity in utility capital structures has gone largely unquestioned, despite its cost and diminishing relevance. Equity traditionally serves as a financial cushion, absorbing losses and offering control over business operations. But regulated utilities operate with minimal market risk, selling essential, universally demanded services. Their failure is not only rare but socially and economically unacceptable, which challenges the need for equity participation in such predictable and low-risk environments.
Global Models Show Public Utilities Can Operate Efficiently Without Private Equity Involvement
Internationally, there are numerous successful examples of utilities operating without private equity. Entities such as China’s State Grid and France’s EDF illustrate that fully or mostly government-owned utilities can thrive while managing vast infrastructure and customer bases.
EDF’s move to renationalize after experimenting with privatization, alongside the problematic experiences of privatized utilities in the UK, raises doubts about the benefits of equity ownership in this sector. These cases suggest that equity investors may introduce unnecessary complexity and risk without delivering corresponding value.
Utilities operate in a sector defined by stability, predictability, and public necessity. Yet they continue to carry expensive equity in their financial structure, which raises capital costs and ultimately burdens ratepayers. Given the minimal risk profile of these companies, it may be more efficient and equitable to shift toward entirely debt-financed models. By doing so, society can redirect financial benefits away from private shareholders and toward more affordable and reliable services for the public.
