Are Regulators Allowing Returns on Equity Above the Real Cost of Equity?

Utilities are seeking to earn returns on equity above the real cost of equity. Currently, there are five strategies: (1) move assets from state jurisdiction to FERC jurisdiction; (2) use holding company debt to fund utility subsidiary equity (aka "double leveraging); (3) seek supranormal returns as "incentives" to perform normal tasks; (4) seek authorized returns that reflect certain business risks while shifting those risks to ratepayers; and (5) use "riders" reduce business risks without reducing authorized return on equity. This presentation describes these strategies.