Written by Rachel Gass – 6/16/2026
As electricity bills continue to rise across Pennsylvania, ratepayers are pressing regulators and elected officials to explain why power bills are climbing and what can be done to lower them. This pressure is especially acute as customers worry that more increases are coming as utilities seek billions of dollars for new infrastructure to meet rising demand from electrification and data center-driven load growth.
Understanding rising utility bills requires looking beyond electricity supply costs to an under-scrutinized but equally important factor: utility finance. While energy prices and wholesale markets typically receive the most public attention, utility profits, especially returns on infrastructure investments, can significantly shape the costs customers ultimately pay.
This blog post breaks down the major drivers behind rising electricity bills and examines how utility profits may play a larger role than many consumers realize, paying a closer look at Pennsylvania and recent efforts by policymakers and regulators to make energy bills more affordable across the Commonwealth.
Why Electricity Bills are Rising
There are three major drivers of higher electricity bills:
- A supply-demand gap exacerbated by permitting delays, supply chain constraints, and backlogged interconnection queues that slow new generation from coming online.
- Costly grid upgrades and new infrastructure investments driven by rapid data center growth and increased electrification.
- Higher-than-necessary utility profits, particularly through elevated returns on equity (ROE) and incentives to overbuild infrastructure.
The first two factors primarily impact the supply charge on customer bills while the third affects the distribution charge, the portion customers pay for utilities like PECO and PPL to deliver electricity to their homes and businesses. Utility profits have historically received far less attention than other contributing factors in public conversations about affordability.
| Problem | Main Causes | Bill Impacts |
| Supply-demand gap | Permitting delays, supply chain backlogs, interconnection queues | Higher wholesale supply costs |
| Grid strain and infrastructure upgrades | Data center growth, rapid electrification | Increased capacity costs (included in the supply cost portion of consumer bills) |
| Utility profits | High ROEs, over-investment incentives | Elevated distribution charges |
Utility profits are receiving growing scrutiny from consumer advocates and lawmakers who question why utilities continue to raise rates while reporting record profits. Because utilities make money primarily from infrastructure investments, critics argue that lowering investment returns could save ratepayers billions.
The Cost-of-Service Model
The American utility system operates under a longstanding social contract: privately owned, for-profit monopolies agree to provide universal electric service within defined territories in exchange for rate regulation by state public utility commissions (PUCs). These investor-owned utilities (IOUs) supply approximately 70% of the nation’s electricity, including in most of Pennsylvania.
The government treats IOUs as “natural monopolies” under the rationale that electricity infrastructure is most efficiently built and managed by one company. Since customers cannot choose another electric distribution provider, regulators require that rates be “just and reasonable,” sufficient to cover the actual cost of service but not extra.
This model creates an inherent tension. As for-profit companies, IOUs seek to maximize returns for shareholders, while regulators are responsible for ensuring customers pay no more than necessary for safe and reliable service. Two core regulatory challenges emerge from this dynamic:
- Determining a fair return on equity (ROE) for investors
- Ensuring regulators, who have far less information than utilities, can effectively scrutinize spending and reliability standards
Poor management of these challenges contributes to rising customer bills.
Utility Financing and the Ratemaking Process
Under the cost-of-service model, utilities like PECO and PPL pass the cost of electricity directly to ratepayers and earn profits on the infrastructure required to deliver electricity.
Utilities request rate hikes to recover investments in poles, wires, substations, and other long-term assets. Because these projects require significant funding, utilities finance them up front and recover the costs gradually over decades. Customers effectively repay the investment plus interest through their bills, similar to how paying a mortgage works.
Each year, customers pay for:
- Depreciation, or part of the original investment
- Return on capital (ROC) based on the remaining value of the asset in the rate base
Return on capital functions like interest and is where utilities earn profit. Utilities fund projects using a mix of debt (loans and bonds) and equity (shareholder investment). Regulators determine the allowed return on equity, or the profit shareholders are permitted to earn. Under the legal standard ROR=COC, a utility’s rate of return should equal its cost of capital: enough to attract investment, but not so much as to overcharge customers.
Utilities can request rate hikes at any time, triggering formal proceedings in which they must demonstrate that higher rates are necessary to recover costs and earn a reasonable return on invested capital.
These proceedings unfold in rate cases where utilities file extensive financial documents justifying their spending and projected revenue needs. Regulators then review months of testimony from utility representatives, commission staff, consumer advocates, and independent experts before issuing a final order establishing rates that remain in effect until the next rate case.
Inflated Returns and Over-Investment Concerns
Because utility profits depend heavily on ROE and the size of the rate base, utilities have a strong incentive to pursue higher returns and increased capital investment. Some evidence suggests that allowed ROEs may exceed the true cost of equity, violating the legal standard that returns should be no higher than necessary to attract investment.
One way to evaluate whether utilities are earning inflated profits is by comparing a utility’s market value to its book value, or the amount shareholders originally invested. In a “just and reasonable” system, these numbers would be roughly equal.
In practice, utility market values have been approximately double book value for the past 15 years, indicating that returns are consistently higher than necessary, even as affordability concerns grow.
For PECO, an Exelon subsidiary, returns are even higher. Jeanne Jones, Exelon’s chief financial officer, said the company’s 2025 financial performance resulted in adjusted operating earnings of $2.77 per share, meaning that for every dollar invested, shareholders got over double back in return.
This multiplier creates a powerful incentive to invest in utility infrastructure. The result is a structural push towards continuous infrastructure expansion, even when lower-cost alternatives like grid-enhancing technologies or demand-side solutions may exist. As older assets depreciate, utilities replace them with new ones, keeping the rate base—and associated profits—consistently high.
Studies estimate that excess returns cost consumers billions of dollars annually. Pennsylvania is particularly notable in this regard: the Commonwealth allows an average ROE of 12.8%, among the highest in the country, costing ratepayers an estimated $2 billion a year.
Quantifying Utility Profits
Return on equity determines how much utilities earn on shareholder investment but does not directly indicate how much of a customer’s monthly bill goes to profit. Since utilities recover capital costs through customer bills that are often smaller than the rate base itself, the share of each bill going to profit can exceed the allowed ROE.
Analysis by the Energy and Policy Institute found that investor-owned utilities consistently retain a substantial share of customer payments as profit. Between 2021 and 2025, utilities kept roughly 13 to 15 cents of every dollar they collected as profit. For a typical $200 monthly electric bill, that means roughly $30 goes to corporate profits.
Average utility profit margins of around 13% are high compared to most sectors of the U.S. economy, where companies typically report single-digit margins.
In Pennsylvania, profit margins are even higher. PPL and PECO were among the top six profit earners in the PJM region in 2024, reporting profit margins of 20% and 14% respectively. Both earned above the regional average of 11.8%.
In total, IOUs collected more than $200 billion in net income from electricity revenues between 2021 and 2025, with margins continuing to rise.
These findings suggest that soaring profits are not incidental. High utility profits are built into the current regulatory structure, and ratepayers are paying the costs.
Looking at Pennsylvania
Pennsylvania offers a clear example of how rising utility profits translate into higher customer bills. PECO’s 2025 rate hike resulted in a record $354 million profit boost for the utility. Over the same period, PECO’s net income skyrocketed 47.7% to $814 million, according to earning reports by its parent company, Exelon. Exelon President and CEO Calvin Butler earned more than $15.6 million in 2025. As profits climbed, so did customer strain: Pennsylvania recorded a record 400,000 households experiencing utility shutoffs in 2025, according to Elizabeth Marx, Executive Director of the Pennsylvania Utility Law Project.
Shortly after earning record profits, PECO proposed another rate increase for 2027, seeking $429 million for electricity infrastructure and $81 million for natural gas investments as part of a broader $10 billion capital plan. Had it been approved, these increases would have increased the typical household electric bill by about $20 per month and raised natural gas bills by roughly $15 per month. PECO would have received an additional 11% revenue boost from the rate hike.
PECO sought a 10.95% ROE in the case, higher than the 10.59% return it earned in the second quarter of 2025. Consumer Advocate Darryl Lawrence argued that this rate far exceeded what was reasonable, recommending a range of 8.5 to 9.5% instead. Some analysts say the ROE should be even lower, closer to 6 or 7%. Both PECO’s requested and historical ROEs exceed the average authorized ROE for regulated utilities nationwide.
Public Opposition
Governor Josh Shapiro called PECO’s proposal “pure greed,” urging the company to withdraw the rate case immediately.
“Last year PECO raised prices on Pennsylvanians and made an obscene $814 million in profit. They could have used that money to offset people’s costs—instead they passed it onto shareholders. Now they want to jack up prices even more,” he said.
Republican lawmakers also signed onto a letter asking PECO to reconsider its proposal, warning that higher rates would further burden ratepayers already struggling with rising costs.
PECO defended its proposal, arguing the investments were necessary to strengthen the grid and prevent storm-related outages and leaked methane from natural gas pipelines. The utility offered to spread out some of the increases over six years to reduce immediate costs to ratepayers but warned that delaying upgrades would create higher costs in the future.
Successful Pushback
On April 16, PECO withdrew the rate case entirely. The Governor’s office called the decision a “major win for the people of Pennsylvania,” saying it would prevent unreasonable price increases for 1.7 million customers.
PECO said affordability concerns drove the unprecedented decision. “While our filing with the PUC would have provided needed improvements in safe and reliable energy delivery, we recognize that Pennsylvanians are struggling with basic necessities like gas, food, and energy and have decided to withdraw our proposal,” explained now-former CEO David Vahos.
Pennsylvania Consumer Advocate Darryl Lawrence said this reversal marked the first time in more than two decades with the Office of the Consumer Advocate that he had seen a utility withdraw a rate case.
The withdrawal marks a significant victory for ratepayers and an opportunity to address a system that often rewards utilities for expanding infrastructure and securing higher returns, even at the expense of environmental progress and affordability. The reversal also shows that public pressure, political attention, and regulatory scrutiny can meaningfully influence utility rate cases and whether proposed rates are both necessary and reasonable.
Across Pennsylvania, critics argue that utilities like PECO and PPL earn returns well above what is necessary to attract investment, while households struggle with rising bills. These trends raise growing concerns about whether the current model is delivering fair and affordable outcomes for ratepayers.
Shapiro-Backed Reform
Governor Shapiro has made electric affordability a priority, calling for regional electricity market reforms and greater scrutiny of utility profits. “We need to have a hard conversation about the amount of profit utilities and their investors can make on the backs of hardworking Pennsylvanians,” he said in his address to the General Assembly. “We grant these utilities a monopoly—and in exchange, they have a legal responsibility to keep their costs just and reasonable.”
In April, Shapiro appointed a new Special Council for Energy Affordability to scrutinize utility profits and increase transparency in rate cases. He has also pushed to eliminate utility “junk fees,” such as charges for restoring service after shutoffs, and called for clearer standards governing how the PUC evaluates utility profits. “I want the PUC to examine every single line of every single bill to ensure each customer dollar is being well spent,” Shapiro said. Presently, more than 90% of rate cases enter black-box settlements. Litigation before the PUC could create more appropriate returns on equity.
In an unprecedented letter to regulated utilities, Shapiro warned that companies are taking advantage of load growth to earn higher profits. “Rising utility bills have themselves become drivers of inflation,” he wrote, arguing that recent rate requests were driven by “policy and fiscal decisions” within utilities’ control.
Shapiro said future rate increases should be tied to cost-effective financing, clear public benefits, and “transparent, justifiable equity returns.” His administration has encouraged utilities to rely more on lower-cost debt instead of expensive equity financing and use a public bidding process to set the cost of equity. A bill introduced in the House by Elizabeth Fiedler (D, Philadelphia) would create a default formula-based return on equity to reflect its true market-based cost and rein in excessive profits.
Utilities say they are open to working with lawmakers but maintain that significant investment is still needed to improve reliability, support electrification, connect solar and battery storage, and meet growing demand from data centers. Critics agree that modernizing the grid will require substantial investment but argue utilities should prioritize lower-cost solutions like energy efficiency and grid-enhancing technologies that maximize existing infrastructure, even when those options generate smaller financial returns.
What Happens Next
While it is unusual for politicians to be so outspoken on rate cases, which are typically handled through technical regulatory proceedings, recent events show that public pressure matters. Greater scrutiny can affect rate case outcomes and improve accountability in decisions that directly affect household budgets.
The cost of maintaining the status quo is high: rising bills; billions in customer overcharges; weakened public trust; and missed opportunities to invest in cleaner, more affordable energy solutions.
But Pennsylvania’s pushback against PECO shows that change is possible. The challenge now is turning that momentum into lasting reform that ensures utilities serve the public as intended. It is incumbent on the Pennsylvania PUC, consumer advocates, and state lawmakers to ensure that utility investments protect the public interest and maximize consumer benefits moving forward.
