In response to pressure from Gov. Josh Shapiro and broad public commentary, Exelon Corp. subsidiary PECO Energy Co. filed a petition with the Pennsylvania Public Utility Commission on April 16, to withdraw, without prejudice, petitions for electric and gas rate increases totaling $510 million that the company had filed on March 30.

At the same time, the commission (PUC) issued routine procedural orders, setting hearings for rate filings tendered by Essential Utilities Inc. subsidiary Peoples Natural Gas Co. LLC and UGI Corp. subsidiary UGI Utilities Inc. on March 26 and March 27. Peoples is seeking a $163.2 million rate increase, while UGI has requested a $17.3 million revenue requirement increase.

➤ The filings come at a time when affordability issues are top of mind in Pennsylvania and across the US. In connection with recently completed cases for other utilities in the state, the regulators and policymakers have lobbied for greater transparency in the long-standing settlement process, and the governor and certain of the commissioners have made statements arguing for lower returns on equity (ROEs) than the PUC has approved in recent years.

➤ Across the four proceedings, the companies supported ROEs that ranged from 10.85% to 11.25%. These ROEs are significantly above prevailing nationwide averages and the ROEs that the PUC has approved for energy utilities in other recent proceedings. Even so, they are consistent with the level of ROEs that utilities across the US have been requesting in newly filed rate cases over the last two years.

➤ The companies said that key drivers of their rate requests were ongoing investment in their distribution systems to ensure safety and reliability, and increased costs of labor, contracting, and materials.

➤ The PUC has a full rate case agenda, with three other major energy utility rate cases already underway.

➤ Regulatory Research has considered the regulation in Pennsylvania to be constructive from an investor viewpoint in comparison to other jurisdictions. While these recent developments indicate a tightening of the regulatory climate, it is unclear whether this represents a more significant shift than RRA is observing across the US. As such, RRA will be closely monitoring the situation.

The PECO cases technically remain pending, as the company requires formal PUC approval to withdraw them.

While the commission has set the Peoples and UGI cases for hearing, procedural schedules have not been established. Given the nine-month statutory time frame for rate cases to be completed, decisions in these proceedings are likely to be issued by the end of 2026.

A prehearing conference is slated for April 28 in the Peoples case, but no date has been announced for a prehearing conference in the UGI case.

PECO filing overview

PECO, Pennsylvania's largest utility, serves approximately 1.7 million electric customers and more than 545,000 natural gas customers in southeastern Pennsylvania.

Rate requests

In Docket Nos. R-2026-3060589 and R-2026-3060860, respectively, PECO sought an electric rate increase of $429.1 million (9.32%) and a gas rate increase of $81.3 million (14.5%). The company requested a 10.95% return on equity (53.40 of capital) and an 8.08% return on year-end rate bases valued at $10.952 billion (electric) and $4.002 billion (gas) for a fully forecast test year ending Dec. 31, 2027.

PECO said the filing was driven by the need to earn a fair return on investments in safe and reliable service and to reflect incremental investments in: utility infrastructure under its PUC-approved replacement program; new information technology to meet customer expectations and improve operations; and higher operating expenses, including increased labor, contracting and materials costs.

By the end of the test year, PECO projected $2.8 billion in new and replacement electric distribution plant and $791 million in additional gas distribution plant since its last rate case.

The company contended that despite operating costs rising more slowly than inflation, its "ability to make necessary, reasonable and prudent investments to continue to serve customers will be impaired without a rate increase." It projected that, without rate relief, its overall rate of return at present rates would be 5.4% for electric operations and 6.6% for gas operations for the future test year, implying a 5.94% electric ROE and an 8.18% gas ROE. PECO said that a lack of "rate relief" could adversely affect its credit metrics and have negative implications for its investment-grade debt ratings.

PECO said it petitioned to withdraw the case after "reflecting upon concerns expressed by customers, policymakers, regional leaders, and community partners." The company committed to continue "on-going investments required for system safety, system maintenance, operational integrity, and reliability" and said it remains "committed to ongoing electric distribution system modernization to meet customer needs."

Prior rate cases

PECO's previous electric and gas rate cases were decided in 2024, when the PUC adopted black-box settlements authorizing $354 million electric and $78 million gas rate increases. Under the settlement, PECO agreed not to file for another electric or gas base rate increase before March 16, 2026. Consistent with other recent black-box settlements, the company was authorized to use proxy ROEs approved in the PUC's quarterly earnings reviews of jurisdictional utilities to set the revenue requirement for quarterly adjustments under its distribution system improvement charges (DSICs).

At that time, approved proxy ROEs were 9.90% for electric utilities and 10.15% for gas utilities, based on the report for the 12 months ended June 30, 2024.

Peoples filing overview

Peoples is Pennsylvania's largest natural gas distribution company, serving about 740,000 customers in western Pennsylvania and Kentucky.

Rate request

In its March 26 filing (Docket No. R-2026-3060855), Peoples seeks a $163.2 (13.8%) gas distribution rate increase premised upon an 11.25% return on equity (54.47% of capital) and an 8.23% return on a year-end rate base valued at $5.729 billion for a fully forecast test year ending Dec. 31, 2027.

The company says the increase is needed to earn a fair return on investments in providing safe, reliable service and to support infrastructure modernization programs. Peoples projects that by the end of the test year, its plant in service balance will be $1.4 billion above the level approved in its prior case.

Peoples asserts that "this revenue increase is essential to attract the investments necessary to operate and maintain safe, reliable, and customer-focused natural gas distribution services." Without a rate increase, it estimates a 5.99% return on rate base during the test year, equivalent to a 7.14% ROE.

The company says the increase is needed despite strategic corporate structure and tax measures intended to drive efficiencies, including "efficient project costs for its pipeline replacement work through focused efforts on cost containment." At the same time, Peoples has expanded low-income customer assistance and weatherization programs and waived connection fees, reconnection fees and security deposits for those customers.

Peoples also notes that its proximity to the Marcellus Shale deposit has helped keep down gas supply prices, which are not part of this case.

The requested ROE includes a 25-basis-point performance increment, which the company says is warranted by its "management efforts, system investments, and continued provision of safe and reliable service at reasonable rates."

Prior case

Peoples' previous rate case was decided in September 2024, when the PUC approved a settlement authorizing a $93.0 million (11.1%) gas distribution rate increase. The agreement did not specify the underlying rate base or rate of return but directed PNG to use proxy ROEs approved in the PUC's quarterly review of utilities' earnings.

At that time, the most recently approved proxy ROE for gas utilities was 10.15%, based on results for the 12 months ended March 31, 2024. While the commission voted unanimously to approve the settlement, Vice Chair Kimberly Barrow issued a statement expressing concern about the lack of transparency in black-box settlements and cautioning utilities against relying on the PUC's quarterly earnings findings to justify their supported ROEs.

UGI filing overview

UGI Utilities provides electric utility service to over 62,900 customers in northeastern Pennsylvania.

Electric rate request

In Docket No. R-2025-3059430, UGI seeks a $17.3 million (33.5%) electric distribution rate increase premised upon a 10.85% return on equity (54.25% of capital) and an 8.26% return on a year-end rate base valued at $239.2 million for a fully forecast test year ended Dec. 31, 2027.

UGI says the filing is intended to: earn a fair return on investments in providing safe, reliable service; support ongoing approved infrastructure replacement programs; recover operating expenses needed for electric distribution service; enhance information technology systems; and update rate design and allocations to better reflect operations.

Compared to current plant balances embedded in existing rates, UGI projects an $83.6 million increase in gross plant by the end of the test year. It estimates that, if present rates remain in place, it would earn a 3.43% overall return on rate base, equivalent to a 1.95% ROE for the test year. UGI said its financial analysis shows these returns are inadequate based on the risks it faces.

UGI states that since its prior rate case concluded in 2023, inflation and supply chain disruptions have pushed up operating costs, while higher salaries and wages have increased the cost to serve customers. It argues that "the combination of continued significant system investments, rising operational costs, and minimal customer growth will produce an inadequate rate of return if present rates remain unchanged."

The planned IT investments involve hardware and software upgrades that UGI says will improve capital project management, cybersecurity, customer communications, billing and other functions.

UGI's previous electric rate case concluded in 2023, when the PUC approved a settlement allowing an $8.5 million increase in electric distribution base rates. As is typical of Pennsylvania rate case settlements, the agreement was silent on the supporting rate of return and rate base metrics. It included amendments to UGI's universal service programs and allowed the company to use proxy electric ROEs set by the commission in its quarterly earnings reviews for jurisdictional utilities. At that time, the most recent report, covering the 12 months ended March 31, 2023, specified a 9.65% ROE for electric utilities.

The PUC approved the settlement unanimously, but three commissioners warned that base rate proceedings, particularly those resolved through black-box settlements, are not an appropriate venue for changes to a utility's universal service programs because of limited transparency.

Other pending Pennsylvania rate cases

In addition to the recently filed electric rate case, UGI also has a gas distribution rate case underway. In that case, the company is seeking a $99.4 million increase in its gas local distribution revenues, reflecting a 10.75% return on equity (54.25% of capital) and an 8.20% return on a year-end rate base valued at $4.319 billion for a fully forecast test year ending Sept. 30, 2027.

The parties to the case filed testimony on April 13, but the related documents were not made public. Hearings will be held June 2–4, and a final decision is expected by the end of October.

National Fuel Gas Co. subsidiary National Fuel Gas Distribution Corp. filed in January 2026 for a $19.7 million increase in its gas local distribution rates, which reflects an 11.25% return on equity (56.40% of capital) and an 8.78% return on a year-end rate base valued at $571.6 million for a fully forecast test year ending Oct. 31, 2027.

The parties filed testimony on April 16 and 17, but the related documents are not publicly available. Hearings will be held June 2–4, and a final decision is expected by the end of October.

PPL Corp. subsidiary PPL Electric Utilities Corp.'s pending electric rate case is expected to conclude in June. The parties reached a settlement in March that calls for a $275 million rate increase. The nonunanimous agreement is largely silent on underlying ratemaking adjustments. Consistent with past practice, for DSIC adjustments, PPL-E would use the proxy equity return for electric utilities from the PUC's most recent quarterly earnings report at the time of each adjustment. The settlement also establishes a new large-load tariff for customers with loads of at least 50 MW at a single facility or 75 MW in aggregate among facilities taking service from PPL-E at or above 69 kV within a 10-mile radius.

On April 17, the administrative law judge conducting the case issued a recommended decision calling for the PUC to approve the settlement.

PPL had requested a $356.3 million electric distribution rate increase premised upon an 11.35% return on equity (56.05% of capital) and an 8.56% return on a year-end rate base valued at $5.818 billion for a test year ending June 30, 2027. This was the first case for PPL in over 10 years.

Operation of the DSIC and proxy ROEs explained

Legislation enacted in 2012 allows the PUC to approve adjustment clauses that recognize, between rate cases, utility investments in certain electric, gas and water infrastructure projects included in a PUC‑approved long-term infrastructure improvement plan (LTIIP). Utilities with such clauses must maintain LTIIPs, which the PUC reviews at least every five years, and may file for DSIC adjustments as often as quarterly.

Quarterly adjustments under an approved DSIC are only permitted if the company is earning below the authorized ROE and are subject to a cap of 5% of distribution base rate revenue annually. Annual audits are conducted to identify and reconcile any over- or under-recoveries. All of the covered major electric, gas and water utilities have LTIIPs and DSIC mechanisms in place. The law allows utilities to request and the PUC to approve changes to the revenue requirement cap, and the PUC has done so on a limited basis.

The DSIC mechanisms rely on the ROE approved in the most recent base rate case for each utility, provided that ROE was set within two years prior to the adjustment. If not, the utility uses the proxy ROE from the PUC's most recent quarterly earnings review.

The PUC's most recent proxy ROE determination in October 2025 (reflecting the 12 months ended June 30, 2025) set ROEs of 10.05% for electric utilities and 10.25% for gas utilities. A subsequent determination based on results for the 12 months ended Sept. 30, 2025, which past practice suggests would have been issued in January or February 2026, has not been released, so the October 2025 ROEs remain in effect.

These ROEs remain above recent nationwide averages. According to RRA, the average ROE approved in all electric rate cases decided in 2025 was 9.84%, and for delivery-only utilities like those in Pennsylvania, the 2025 average was 9.56%. The average ROE authorized in all gas rate cases during 2025 was 9.87%.

For further information regarding ROEs and capital structure trends, see RRA's latest "Major Rate Case Decisions" report.

RRA view of Pennsylvania regulation

While RRA continues to view Pennsylvania's regulatory climate as constructive from an investor viewpoint, recent developments may signal a tightening in the jurisdiction. While virtually all cases since the 1990s have been resolved by black-box settlements, in recent years, there has been growing pushback against this practice for certain utilities.

In his 2026 budget address, Gov. Josh Shapiro called for greater transparency in the rate case process, particularly with respect to authorized ROEs. Requiring more detail may have limited direct impact, but could make settlements modestly harder to achieve, as ROE is typically a central point of contention.

Even before the governor's address, some PUC members had challenged the 10% ROE recommended by the administrative law judge in a recent fully litigated case. Although the majority upheld the recommendation, this split could indicate a shifting stance.

Even so, it is noteworthy that PPL Electric Utilities Corp. has reached a settlement in its pending electric distribution base rate case that remains silent on the underlying ROE. Consistent with recent comments by the PUC chairman, however, the settlement provides more specific information than in past cases, including average total bill impacts by customer class, precise percentage increases and detailed settlement rate impacts.

Shapiro also described Pennsylvania as a state where utilities can earn "among the highest returns in the nation," which pressures the PUC to lower authorized ROEs, even though most utilities appear to earn below prevailing averages, based on the commission's quarterly earnings reports. Shapiro faces reelection in November 2026, and affordability is expected to be a central campaign theme.

The 2026 gubernatorial race coincides with elections for 25 of 50 state Senate seats and all 203 House seats. Energy and affordability issues are likely to feature prominently and could influence the PUC's stance in pending cases. The primaries are scheduled for May 19, 2026.

In light of these developments, RRA had identified Pennsylvania as a state to watch.