crs_reports: R49482

Congressional Research Service reports with summaries, authors, and topic classifications.

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R49482 Retail Electricity Rates and Utility Return on Equity: State Primacy and Federal Influence 2026-10-08T04:00:00Z 2026-10-10T05:08:30Z Active Reports Ashley J. Lawson, Adam Vann Electricity, Federalism, Energy Policy The retail electricity rates paid by end-use commercial and residential customers have long been a focus of federal, state, and local policymakers. In 1935, Congress passed the Federal Power Act (16 U.S.C. §§ 791a–823g), under which state and local utility regulators retain primary authority over retail electricity rate regulation. The law, in part, reflected views of the Supreme Court and others at the time about the scope of Congress’s authority to regulate interstate commerce pursuant to Article I, Section 8 of the U.S. Constitution. In the years that followed, the Supreme Court has taken a more expansive view of Congress’s constitutional authority, including over intrastate activities that substantially relate to interstate commerce. These judicial developments, along with the growing interconnectedness of the nation’s electricity system since the early 20th century, have reduced some of the constitutional barriers to congressional regulation of retail electricity services and rates. Nonetheless, political opposition to an expanded federal role from many states, utilities, and others creates potential barriers to Congress’s action in this space. Instead of amending the Federal Power Act to create an explicit role for the federal government in setting utility retail policies, Congress has opted for other mechanisms to influence retail rates. Since 1978, one such mechanism has been Section 111(d) of the Public Utility Regulatory Policies Act of 1978 (PURPA; 16 U.S.C. § 2621(d)). This section’s “states-must-consider” standards, as they are sometimes called, establish congressionally preferred policies that state and local utility regulators must consider adopting. The ultimate decision to adopt—or not adopt—the federal standards is made at the state level. Congress established 21 standards in Section 111(d) from 1978 to 2021 (the most recent year in which Congress amended the section). A retail electricity rate issue receiving attention in the 119th Congress is the return on equity (ROE) utilities are allowed to receive on capital investments they make in their infrastructure (for example, transmission lines, distribution system equipment). ROE is, in part, meant to attract capital to the electricity sector. Utility regulators generally approve ROE levels that are comparable to returns in other industries with similar risk profiles. A lack of capital investment in electricity infrastructure could harm performance or have other negative consequences. Some advocates argue that current utility ROE levels are not economically justified and should be lowered in an effort to reduce retail electricity rates. H.R. 8568, introduced in the 119th Congress, would, among other things, direct FERC to establish a range of reasonableness for ROE comprising three specific data points based on financial markets information, as prescribed by the bill. Another bill, H.R. 7977, would, among other things, direct FERC to collect and make publicly available information from utilities about ROE and their capital structure. If Congress chooses to address how utility ROE is calculated (or other retail policies), it could do so by amending the Federal Power Act to create a federal role over ROE, amending Section 111(d) of PURPA, or pursuing a variety of ways to have utilities voluntarily lower their ROE. Each of these options has potential trade-offs in terms of electricity reliability and affordability. Additionally, the traditionally limited role of the federal government in addressing retail policies could be called into question as part of any legislative debate on potential action. https://www.congress.gov/crs_external_products/R/PDF/R49482/R49482.2.pdf https://www.congress.gov/crs_external_products/R/HTML/R49482.html

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