Gauging risks: Rising interest rates and industry restructuring
With major utility industry restructuring looming, risk issues have become proportionally more important and complex. California regulators, for example, have increased the return for the state`s electric utilities to account for the pace of restructuring in the `Blue Book` proceedings. Performance-based regulatory reform efforts, new environmental regulations, and swings in interest rate trends have already been cited to support utility risk bonuses. Yet, in many cases, regulators have refused to award bonus adjustments, finding such changes to well known and reflected in the standard financial models used in setting return on equity. Nevertheless, regulators have acknowledged that restructuring might increase utilities` cost of capital. While finding that consumers might benefit from restructuring and competition at the retail level, the Connecticut Department of Public Utility Control advised careful consideration of downside risks. The possibility that shareholders might be left to cover high-cost investment stranded as a result of increased competition in the electric market has also figured in the return-on-equity debate. At the same time, the question of whether investors assume the risk of paying for uneconomic utility investments has become a focal point in the policy debate over stranded costs.
- OSTI ID:
- 146066
- Journal Information:
- Fortnightly, Vol. 133, Issue 5; Other Information: PBD: 1 Mar 1995
- Country of Publication:
- United States
- Language:
- English
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