Transmission-company returns depend on two things working together: the regulatory rules that determine what revenue and investment the company can recover, and the company’s ability to deliver approved work at an acceptable cost and on schedule. An allowed return is not the same as a realized return, and winning or receiving a project is not automatically profitable.
How transmission companies earn returns
Transmission companies build, own or operate the high-voltage networks that move electricity between generators, substations and distribution systems. In many jurisdictions, a regulator sets or reviews the revenue a network may collect, the investments it may recover, and the performance obligations it must meet. The details differ by country and regulatory period; there is no single tariff formula that applies everywhere.
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A useful way to assess the economics is to separate the revenue framework from the return on capital and then test whether actual costs and delivery match the assumptions behind them. Revenue pays for more than shareholder returns: it may also cover operating costs, depreciation, financing costs, taxes and approved investment. The amount left for equity holders depends on the rules and the company’s financial and operating results.
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Allowed revenue sets a recoverable envelope
A regulator may establish a revenue requirement, revenue cap or other tariff allowance for a defined period. That figure is not automatically profit, nor does it mean the company will collect the same amount in every circumstance. The decision may include forecasts, efficiency assumptions, service obligations and mechanisms for later adjustments. Regulators can scrutinize proposed spending and recognize only costs they consider efficient, prudent or otherwise eligible.
For example, the Philippine Energy Regulatory Commission (ERC) said its decision for the National Grid Corporation of the Philippines (NGCP) set an annual revenue requirement of PHP 374.98 billion for 2023–27, 15.28% below NGCP’s requested PHP 442.60 billion. The ERC described maximum annual revenue as a ceiling and said the decision included only costs and investment that passed its scrutiny. Those figures describe the Philippines’ decision and period; they should not be treated as a template for another country’s tariff system.
Allowed return is not realized return
An allowed return on equity (ROE) is a regulatory input or limit used in a particular framework. Actual ROE reflects what the company earned under the relevant accounting and regulatory circumstances. The result also depends on the capital base to which the allowance applies, approved cost recovery, financing choices, operating performance and any adjustments or disallowances. A headline allowed ROE cannot, by itself, tell you what shareholders ultimately earned.
FirstEnergy’s 2025 filing illustrates the distinction for its FET stand-alone transmission entity: it reported allowed ROE figures ranging from 9.88% to 12.7% and actual ROE of 9.8%. The filing also said an approved ROE was reduced by 0.5 percentage points following a January 2025 Sixth Circuit ruling concerning an RTO-membership adder. These are company- and case-specific figures, not a market-wide rate or a forecast of future returns.
What a project award does—and does not—tell you
A project award creates a defined opportunity to build or deliver infrastructure; it does not establish the project company’s profit. The award value, capital expenditure and profit are different measures. To understand the economics, establish who owns the asset, who finances construction, when revenue begins, which costs are eligible for recovery, how savings or overruns are treated, and what milestones or service outputs are required.
The route to an award matters too. Work may be competitively tendered, directed to an existing network operator or subject to a separate regulatory determination. Those routes can differ in procurement rules, scrutiny and risk allocation. Even after a project is selected, regulators may assess whether proposed costs are prudent, efficient and reasonable before allowing recovery.
Australia: a project-specific revenue determination
On 30 September 2026, the Australian Energy Regulator (AER) determined revenue for Transgrid’s NSW System Strength Project for 2026–31. The project includes 10 synchronous condensers at five sites. The AER treated contestable tender components differently from a non-contestable component and assessed whether the costs were prudent, efficient and reasonable.
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The AER allowed $385.6 million in nominal revenue through quarterly payments for the 2026–31 period, $15.2 million, or 3.8%, below Transgrid’s proposal. One key adjustment concerned provisional sums for specified risk events: rather than allow those sums as proposed, the regulator addressed the risks through an ex-ante capital expenditure allowance and adjustment mechanisms. The determination also included efficiency incentives and specified revenue adjustment provisions. These terms and figures apply to this project and decision, not to Australian transmission projects generally.
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Philippines: third parties can have a defined project pathway
Rules issued by the Philippine ERC in June 2026 provide a pathway for parties other than NGCP to finance and construct designated Associated Transmission or Priority Projects. The rules set conditions for approval, construction timelines, turnover and recovery. They also retain a prudency review and allow the ERC to determine fair and reasonable value before costs are recovered. In this model, the opportunity depends on regulatory approval and recovery terms, not merely on being able to finance and build the asset.
Execution risks that can reduce returns
Transmission projects are capital intensive and may span multiple years, so the difference between forecast and delivered economics can be material. A practical review should follow the risks from the initial cost estimate through procurement, construction, commissioning and ongoing service.
- Cost control and eligibility: Compare forecast and actual costs by activity and category. Identify which spending is allowed, which may be disallowed, and whether overruns can be passed through or remain with the project company. Ofgem’s RIIO-2 transmission reporting examines under- and overspend across activities and cost categories.
- Procurement: Determine which work is contestable, whether it was competitively tendered, and whether the regulator accepts the tender process and resulting costs. The AER’s Transgrid determination assessed tender processes and treated contestable and non-contestable components differently.
- Risk allocation: Check how cost uncertainty is covered: for example, by a fixed allowance, provisional sums, an ex-ante capital expenditure allowance, insurance or adjustment mechanisms. Transgrid’s determination shows that a regulator may reject a proposed risk allowance while addressing the same risks through a different mechanism.
- Schedule and output delivery: Track delivery against required outputs and milestones, and check whether delay affects revenue, incentives, penalties or consumer outcomes. Ofgem’s reporting framework covers output delivery as well as cost and expenditure.
- Supply chain and financing: Equipment lead times, construction funding, debt maturities and interest costs can affect both delivery and financial performance. FirstEnergy’s 2025 filing discusses utility capital needs and ongoing monitoring of supply lead times.
- Regulatory change: Revenue decisions, cost eligibility and incentive adders can change over time. FirstEnergy’s disclosed ROE-adder adjustment is one case-specific example of a regulatory factor changing; an approved rate should not be assumed to remain permanent.
What regulators’ reporting reveals
Regulatory reporting can show whether a company delivered the outputs associated with its allowed revenue and how its costs compared with allowances. Ofgem’s RIIO-2 transmission reporting covers network-owner output delivery and financial performance. Its 2025–26 reporting instructions require operators to report cost, volume, allowed expenditure and output delivery under licence conditions.
This kind of reporting makes it possible to assess money and service obligations together. An allowed ROE or revenue figure alone says little about whether the company delivered the required work, controlled costs or met its outputs.
How to compare companies or projects fairly
Do not compare a percentage from one transmission company with another without first aligning the rules, periods and financial bases. A reliable comparison should identify:
- the jurisdiction, regulator and regulatory period;
- the tariff or revenue method and whether the figure is proposed, approved, collected or adjusted;
- the allowed ROE or weighted average cost of capital (WACC), and the capital base to which it applies;
- capital and operating expenditure allowances, and rules for cost disallowances or overruns;
- how the project was awarded, who owns and funds it, and when revenue recovery starts;
- risk allocation, delivery obligations, incentives and adjustment mechanisms;
- actual cost and output performance; and
- material financing and supply constraints.
Keep currency and price basis consistent as well. A nominal project revenue figure for a specific period should not be compared as though it were a real, annualized amount or a shareholder return. Make sure the comparison distinguishes an application from a regulatory decision and an allowed figure from an actual result.
What the examples establish—and what they do not
The UK reporting framework, the US company filing, the Australian project determination and the Philippine revenue and project rules illustrate different pieces of transmission economics. Together, they show why return analysis needs both the regulatory framework and the execution record. They do not establish one global tariff model, a cross-market ranking of company returns or a forecast for any company’s future performance.
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