Regulated equity returns: A puzzle

David C. Rode and Paul S. Fischbeck

Energy Policy, 2019, vol. 133, issue C

Abstract: Based on a database of U.S. electric utility rate cases spanning nearly four decades, the returns on equity authorized by regulators have exhibited a large and growing premium over the riskless rate of return. This growing premium does not appear to be explained by traditional asset-pricing models, often in direct contrast to regulators’ stated intent. We suggest possible alternative explanations drawn from finance, public policy, public choice, and the behavioral economics literature. However, absent some normative justification for this premium, it would appear that regulators are authorizing excessive returns on equity to utility investors and that these excess returns translate into tangible profits for utility firms.

Keywords: Discount rate; Electric utility; Rate of return regulation; Valuation (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:enepol:v:133:y:2019:i:c:s0301421519304690

DOI: 10.1016/j.enpol.2019.110891

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