The Maine Public Utilities Commission met on Thursday to hear testimony from expert witnesses on a previously obscure financial metric that has become a flashpoint in Central Maine Power’s ongoing rate case.
The electric utility, which serves southern and central Maine, has requested approval to increase distribution rates by approximately $18 a month for average residential customers. The rates, which Central Maine Power has proposed to implement in two stages, would raise a total of $189 million in additional revenue, meant to pay for new poles, smart devices to restore power during outages, substation upgrades, tree maintenance and additional workers, according to Central Maine Power.
As part of this proposal, Central Maine Power is requesting that the Public Utilities Commission increase the return on equity the company is allowed to make from 9.35 percent to 9.8 percent.
Utilities pay for their infrastructure in part with equity, or investments from shareholders. The return on this equity is essentially the profit investors receive, and is supposed to be large enough to attract enough investment to build and maintain a reliable electric grid, but not so large that it burdens customers unnecessarily. That ideal number is up for debate, both in Maine and nationwide.
If Central Maine Power’s request is approved, about $61 million of the $189 million the company seeks to raise would stem from the increased return on equity, according to an analysis by the Office of the Public Advocate provided to the Portland Press Herald.
A company’s actual earned return can differ from what regulators authorize. In 2025, Central Maine Power’s earned return on equity was 5.8 percent.
Mark Ellis, an expert witness who testified Thursday on behalf of CMP Ratepayers Unite, a group representing customers, has recommended an authorized return on equity of 5.64 percent. Ellis is a former chief of corporate strategy for the California utility Sempra. A paper he published in 2025 with the think tank American Economic Liberties Project, which advocates against monopolies, has helped push the topic into the public eye, and he has testified in rate cases in other states.
During the Thursday meeting, one of Central Maine Power’s attorneys, Sarah Tracy of Pierce Atwood, questioned Ellis about this past testimony, asking whether any public utility commission has adopted his recommendations. None have.
“I believe commissions err grievously in how they determine [returns on equity],” Ellis replied, adding that commissions don’t entirely rely on any individual’s testimony to make their decisions.
Ellis’ dramatically lower recommendation would probably “startle some folks,” said J. Randall Woolridge, who recently retired as a professor of finance at Pennsylvania State University and testified Thursday at the request of the Public Utilities Commission staff. Though Wooldridge himself disagrees with both Ellis and Central Maine Power — and instead recommends a return on equity of 9.375 percent — he said Ellis’ recommendations could be justified based on the data and methods used.
Central Maine Power and utilities like it have monopolies over their service areas because having multiple companies building different power lines and poles in the same areas would be impractical. As a result, these companies are subject to regulation rather than competition. Regulators set a utility’s authorized return on equity during rate cases, and that return is tacked on to the rates customers pay.
Most authorized returns on equity for electric utilities in the United States are set between 9 and 11 percent, with the average amount authorized in rate cases since 2020 at 9.69 percent, according to an analysis by the think tank the Alliance for Innovation and Infrastructure. These returns on equity have decreased slightly over the past two decades, potentially due to lower demand for electricity as energy efficiency improved, said Owen Rogers, a policy analyst with the group who recently published a report on the topic.
But critics argue that utility companies’ returns are much higher than the average for the U.S. stock market as a whole — forecast to be about 7 percent for the S&P 500 over the next 10 years, according to a recent survey by the Federal Reserve Bank of Philadelphia — despite utilities generally being considered less risky investments.
Now, both electricity demand and utilities’ returns on equity are rising again.
Attracting investment versus maintaining affordability
Central Maine Power explained its request for a higher return on equity in written testimony filed in April by Ann Bulkley, a principal at the Boston-based consulting firm the Brattle Group, who is serving as an expert witness for the company. She argued that 9.8 percent is justified for several reasons, including market conditions, the returns on equity of other comparable companies and past U.S. Supreme Court decisions on utilities’ returns.
Bulkley used several models to estimate the company’s cost of equity, or the amount of profit investors might expect to make Central Maine Power worth their while. That estimated cost of equity is then used to inform the appropriate return on equity, which Bulkley argued is between 10 and 11 percent, slightly above what the utility is requesting.
“In this proceeding CMP is keeping affordability in front of mind,” she said in her written testimony. “A return that is adequate to attract capital at reasonable terms enables CMP to continue providing safe, reliable electric service while maintaining its financial integrity. That return should be commensurate with returns expected elsewhere in the market for investments of equivalent risk.”
In his written testimony filed this month, Ellis cited the same Supreme Court decisions to argue that returns should be set to equal the cost of capital, and no more. He criticized some of the models used by Bulkley, especially those that incorporate other companies’ authorized returns on equity, as using circular logic.
Ellis and CMP Ratepayers Unite have argued that an analysis done by Iberdrola for its 2025 financial report might be more enlightening. That analysis featured a discount rate, which helps determine whether future returns from an investment will be worth more than the capital needed now, of 6.26 percent across its U.S. electric and gas assets. Discount rates are not the same thing as cost of equity, but they get at similar questions for investors.
Earlier in August, the Public Utilities Commission required Central Maine Power to show the work behind Iberdrola’s discount rate analysis.
Bulkley emphasized in her written testimony that Central Maine Power’s return on equity should be based on the cost of equity for the Maine utility alone, and not for its parent companies Avangrid and Iberdrola, which also include gas and transmission utilities in different regions.
In a recent credit ratings update, S&P Global rated Central Maine Power higher than Avangrid and Iberdrola, meaning analysts view the utility as a less risky investment than its parent companies overall. Central Maine Power’s outlook, however, is negative, meaning S&P Global may downgrade its rating in the future.
Jesse Houck, an economic analyst for the Office of the Public Advocate, also testified on Thursday on behalf of his office. He has recommended that Central Maine Power’s authorized return on equity be set to 8.27 percent, and criticized the company’s lack of a quantitative affordability analysis despite its stated focus on affordability.
“An awarded return set significantly above the true cost of equity,” he said in his written testimony filed in July, “results in an unfair wealth transfer from ratepayers directly to shareholders beyond what is required.”
Return on equity is “entering the public consciousness,” according to Rogers, the infrastructure think tank analyst. But while this number has been front of mind for both participants and onlookers in Central Maine Power’s rate case, it’s “not the whole thing,” he said.
The Public Utilities Commission is expected to deliberate on various other aspects of this case over several months. Most immediately, the commission is expected to make a decision on the first part of Central Maine Power’s request.
Central Maine Power has proposed that its requested rate increase take place across two stages: first, with an immediate temporary rate increase of approximately $7 per month for the average residential customer, and then with a longer-term increase that would add approximately $11 per month beginning in May 2027.
The Public Utilities Commission announced this week that it anticipates making a recommended decision on the temporary rate on Sept. 22, with some back and forth to follow and final deliberations expected on Oct. 6.
