The case for lower utility profits

Utility stocks trading near 2x book value signal regulators are overpaying shareholders by ~$60B/year versus a market-based 6% cost of equity.

• $60B overcharge estimate: Ellis calculates utilities earn roughly $60 billion/year above a fair cost of equity nationwide, about $470-480 per US household annually.
• Fair ROE near 6%: Using CAPM with a ~0.5 beta, treasury rates near 5%, and a 7% expected market return, Ellis pegs fair utility ROE at 6-6.5% versus the ~9.7% national average (9.6% in Texas).

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