Investor Expectations on North American Natural Gas Utilities

From time to time the Energy Regulation Quarterly publishes reports prepared by other organizations on different aspects of regulatory practice. Our usual practice is to introduce the Report with an Editor’s Introduction that summarizes the highlights.


This Report, which was published on July 12, 2022, was prepared by the consulting firm, Guidehouse.[1] It was sponsored by the Canadian Gas Association and the American Gas Association. The study starts by answering three key questions:

  1. How do energy regulators set the allowed return on equity or ROE for gas utilities?
  2. Do the ROE’s in Canada and the United States meet investor expectations?
  3. What future business opportunities should utilities pursue to maintain investor attractiveness?

The study points to some concern about declining levels in the average ROE between 2010 and 2021. It was also significant that the Canadian returns were below the American returns. At the end of the day, it was apparent that the decline was largely related to declining interest rates generally during the period. Generally speaking gas utilities were seen as an attractive investment provided that:

  1. There was positive year-over-year growth in rate base and customer numbers
  2. The rate setting process established by regulators was transparent and consistent
  3. Utilities had plans to diversify and introduce clean fuel with hydrogen blending.

There is no doubt that in Canada both Fortis in British Columbia and Enbridge in Ontario have established a solid track record in terms of hydrogen blending. More recently Enbridge has taken a major investment position in LNG which is generally seen as a positive step with attractive long-term markets.

The study indicates that investors generally agree that there is no low cost alternative to replace natural gas in the short term but gas utilities must still be proactive in addressing decarbonization. Utilities are expected to invest in new fuel supply streams including hydrogen and work towards introducing new technology solutions to the market.

One point should be made about this study- virtually all of the analysis took place before Russia invaded Ukraine. That war has created a dramatic change in the North American gas utility business from an investor perspective. Europe, which is one of the largest energy markets in the world, is dependent on Russia for more than 40 per cent of its gas. All of a sudden there is a demand to replace the Russian gas with gas from other sources.

In particular the focus is on LNG coming from Canada and the United States as well as Australia and Qatar. The recent Enbridge investment in LNG Canada in Kitimat is a good example. That project will be operational within a year. Other projects are in the planning stage including two projects in Atlantic Canada.

The study provides a useful perspective because it is based on interviews with the relevant investor groups. There is no doubt however that the perspective of those investor groups may well be more positive today than at the time the research for this study took place.

The full Report is available here.


  1. Greenhouse, “Investor Expectations on North American Natural Gas Utilities” (12 July 2022), online (pdf): <>

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