In several recent utility rate cases, regulators have disallowed portions of utility compensation expenses, on the basis that difficult local economic conditions justify pay cuts. However, when...
21st Century ROEs: What Is Reasonable?
financial position, and attract new capital. Doing otherwise will jeopardize needed infrastructure investments and lead to lower reliability and higher costs to consumers in the long term. This is of particular importance in the context of significant infrastructure investment requirements, unprecedented industrywide financial pressures on the unregulated segments of the energy industry, and credit rating agencies' concerns that regulatory support for traditional utilities continues to disappoint.
- Joint statement of David A. Svanda, president-elect of the National Associate of Regulatory Utility Commissioners, and Erroll B. Davis Jr., chairman of the Edison Electric Institute, Chicago, Nov. 13, 2002.
- William R. Ferara, "State Utility Regulation Coming Back in Vogue?" Standard & Poor's, New York, Oct. 7, 2002.
- William R. Ferara, "Regulatory Support for U.S. Electric Utility Credit Continues to Disappoint," Standard & Poor's, New York, May 27, 2002.
- Standard & Poor's, "Ratings on Empire District Electric Co. Lowered to 'BBB'; Outlook Stable," RatingsDirect, July 2, 2002.
- Such circularity problems are created when methodologies used to set allowed returns or depreciation rates depend in part on variables that are a function of the allowed returns or depreciation rates.
- For a discussion of why company-specific factors can be an important consideration in any benchmarking exercise, see Pfeifenberger and Jenkins, "Big City Bias: The Problem With Simple Rate Comparisons," , December 2002, pp. 38-42. For a discussion of why it is important to provide and maintain strong performance incentives, see Weisman and Pfeifenberger, "Efficiency as a Discovery Process: Why Enhanced Incentives Outperform Regulatory Mandates," The Electricity Journal, January/February 2003, pp. 55-62.
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