When FERC decided in February, in Order 890, to lift the price cap for electric-transmission customers seeking to resell their grid capacity rights in the secondary market, it cautioned against...
- Base =
(NOPATc,t / Rate Base)
NOPATc,t = net operating profits after tax for firm c in year t
y0 = universal constant
y1 = coefficient for allowed return on Rate Base
y2 = coefficient for regulatory risk
- Most of these variables are significant at the 98 percent or greater level.
- The graphic uses the average allowed ROE granted in decisions handed down during the calendar year for expected return and uses the standard deviation of returns across the industry for the calendar year.
- We are looking to validate the appropriate range of target Sharpe ratio. Our research continues, but based on our work to date, a ratio between 2 and 2.5 seems appropriate.
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