Utility's cost of common equity may be less than its cost rate for new debt

Journal Article · Thu Jun 24 04:00:00 EDT 1982 · Public Util. Fortn.; (United States)

OSTI ID:5192275

Taylor, G T.C.; Peake, C F

Whether a utility's cost of common equity may be determined by adding a risk premium to its cost rate for new debt has become an important issue. First, this article explains that for extended periods of time the greater default risk of stocks may be offset by interest rate risk, inflation risk, and recession risk. Second, it explains the reduction in a utility's cost of common equity relative to its cost rate for new debt resulting from the tax reductions on utility dividend reinvestment under the Economic Recovery Tax Act of 1981. Finally, the lower cost of common equity is shown to provide no basis for increasing the percentage of common equity in the capital structure. 7 references, 2 tables.

• OSTI ID: 5192275
• Journal Information: Public Util. Fortn.; (United States), Journal Name: Public Util. Fortn.; (United States) Vol. 109:13; ISSN PUFNA
• Country of Publication: United States
• Language: English

Related Subjects

29 ENERGY PLANNING, POLICY, AND ECONOMY
290200* -- Energy Planning & Policy-- Economics & Sociology
ECONOMIC RECOVERY TAX ACT
FINANCIAL INCENTIVES
FINANCING
INTEREST RATE
INVESTMENT
LAWS
PUBLIC UTILITIES