When “Low Risk” Pays More Than “High Risk”

Cartoon illustration of a mechanical scale weighing utility return on equity, with the gas pan at 9.84% and the electric pan at 9.82% — the beam nearly level, showing a 2 basis point spread.

By Geoffrey Lubbock There is a puzzle buried in the latest round of US utility rate case decisions, and it cuts to the heart of how regulators price risk. Theory says higher-risk businesses should earn higher returns. The data from 224 PUC decisions — 115 electric and 109 gas — issued in the fifteen months […]