In a preliminary ruling, the Florida Public Service Commission (PSC) has proposed several changes to its rules for setting a generic rate of return on common equity (ROE) for water utilities. The proposed leverage formula produces a suggested ROE range of 10.18 to 11.88 percent, based on an equity ratio of 40 percent. The change represents an increase of 55 basis points over the midpoint indicated by the existing formula. According to the PSC, the update incorporates changes in underlying market conditions, including bond yields and required rates of return. To discourage imprudent financial risk, the PSC also proposed an ROE cap of 11.88 percent for all utilities with equity ratios of less than 40 percent. Re Range of Returns on Common Equity for Water and Wastewater Utilities, Dkt. No. 950006-WS, Order No. PSC-95-0982-FOF-WS, Aug. 10, 1995 (Fla.P.S.C.).
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