The Mississippi Public Service Commission voted 3-0 Tuesday morning to examine the formulas used to calculate return on equity for Mississippi Power Co. and for Entergy Mississippi.
Return on equity (ROE) is the amount of net income returned as a percentage of shareholders equity. It is used to measure a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested in, for example, things like new facilities and new infrastructure.
For utility companies, ROE is set as a percentage. The latest figures the PSC has approved for Entergy’s ROE is 11.63 percent; for MPC that figure is 10.62 percent. That’s about in the middle range for comparably sized utilities in the Southeast.
Each company uses multiple formulas to calculate its ROE, and takes the average of those formulas. For instance, MPC uses three formulas to calculate its ROE. The results generally end with a ROE of somewhere between 9 percent and 11 percent.
Commissioners voted Tuesday to hire consultants and to begin a series of hearings designed to examine the formulas. If the PSC decides it wants to change anything, it will have to be done in an entirely separate docket.
The hearings will likely last several months. It was unclear Tuesday if the first hearing would be a part of the regular meeting scheduled for September 11.