United States-based regulated, investor-owned utilities (IOUs) have been expanding their capital investment budgets. This growth has been driven largely by the sector’s support of energy transition mandates, resulting in both new investment and accelerated capital replacement.
However, with these new investment opportunities come plenty of challenges, as IOUs must juggle an increasing number of complex, long-term projects while ensuring disciplined cost management that provides shareholders appropriate return on equity.
These growth patterns are even more pronounced at the asset level, where distribution investment has more than tripled since 2003 and transmission investment has grown five times over that same period (Figure 1). Looking into the near-term forecasts shared by IOUs, capital investment is expected to grow around eight percent annually, implying total investment will double again by 2033. Industry analysts predict that in total, between 2024 and 2050, North American electric utility investments will cumulatively exceed $3.4 trillion.
How can IOUs maximize rates of return on equity (ROE) while increasing investment? With improved discipline and digitalization of capital investment tools and governance, Publicis Sapient forecasts that a 100 basis-point (BPS) uplift in ROE would yield $5 billion to $10 billion of increased earnings to shareholders annually over that same period.